Question

Smart Stream Inc. uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 cell phones are as follows:

Variable costs per unit:						Fixed costs:
	Direct materials		$150				Factory overhead	$350,000
	Direct labor		25				Selling and administrative expenses	140,000
	Factory overhead		40
	Selling and administrative expenses		25
		Total variable cost per unit	$240

Smart Stream desires a profit equal to a 30% return on invested assets of $1,200,000.

a. Determine the amount of desired profit from the production and sale of 10,000 cell phones.
$

b. Determine the product cost per unit for the production of 10,000 units of cell phones.
$per unit

c. Determine the product cost markup percentage 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

Req a:
Investment made			1200000
Return required			30%
Amount of desired profit			360000
Req b:
Product cost per unit:
Direct material			150
Direct labourr			25
Variable Mfg Oh			40
Fixed Mfg OH (350000/10000)			35
Unit Product cost			250
Req c:
Total Markup requirred:
Selling Oh (10000*25)-Variable			250000
Selling Oh-Fixed			140000
Desired profit			360000
Total Markup requirred:			750000
Divide: Number of untis			10000
Unit markup requirred			75
Divide: Product cost per unit			250
Markup % on total product cost			30%
Req d:
Uunit product cost			250
Add: Markup added			75
Selling price per unit			325