Question

Product Cost Method of Product Costing

Voice Com, Inc., uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 4,750 units of cell phones are as follows:

Variable costs:						Fixed costs:
	Direct materials		$83	per unit			Factory overhead	$199,100
	Direct labor		35				Selling and admin. exp.	68,400
	Factory overhead		26
	Selling and admin. exp.		22
		Total variable cost per unit	$166	per unit

Voice Com desires a profit equal to a 14% rate of return on invested assets of $599,900.

a. Determine the amount of desired profit from the production and sale of 4,750 units of cell phones.
$

b. Determine the product cost per unit for the production of 4,750 of cell phones. If required, round your answer to nearest dollar.
$ per unit

c. Determine the product cost markup percentage (rounded to two decimal places) for cell phones.
%

d. Determine the selling price of cell phones. Round to the nearest dollar.

Total Cost	$per unit
Markup	per unit
Selling price	$per unit

Answer 1

Part-a: Computation of amount of desired Profit
Invested Asset	$599,900.00
Rate of Return	14%
Desired Profit (599900*14%)	$83,986.00
Computation of product Cost per Unit
Direct Material	$83.00
Direct Labour	$35.00
Variable factor Overhead	$26.00
Fixed Factory Overhead (199100/4750)	$41.92
Product cost per Unit	$185.92
Computation of product cost markup percentage
Variable Sellign & Admin Expense (22*4750)	$104,500.00
Fixed Selling & Admin Expense	68400
Desired Profit	$83,986.00
Total Margin required	$256,886.00
Product cost (144*4750)+199100	883100
Margin % (256886/883100)	29.09%
Computation of product Cost per Unit
Total Cost	$185.92
Markup (29.09%)	$54.08
Selling Price	$240.00