Question

1. 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 5,250 units of cell phones are as follows:

   Variable costs:						Fixed costs:
   	Direct materials		$89	per unit			Factory overhead	$200,400
   	Direct labor		30				Selling and admin. exp.	70,800
   	Factory overhead		26
   	Selling and admin. exp.		20
   		Total variable cost per unit	$165	per unit

   Voice Com desires a profit equal to a 16% rate of return on invested assets of $601,300.

   a. Determine the amount of desired profit from the production and sale of 5,250 units of cell phones.
   $

   b. Determine the product cost per unit for the production of 5,250 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

Check My Work

• Previous
• Next

Answer 1

a. Desired profit = Invested assets * Rate of return

= $601,300 * 16%

= $96,208

b. Product cost = (Direct materials + Direct labor + Factory overhead) * 5,250 units + Fixed Factory overhead

= ($89 + $30 + $26) * 5,250 units + $200,400

= $761,250 + $200,400

= $961,650

Product cost per unit = Product cost / Units

= $961,650 / 5,250

= $183 per unit

c.

Markup percentage = (Desired Profit + Selling and administrative expenses) / Total Manufacturing costs

= ($96,208 + ($70,800 + 5,250 * $20)) / $961,650

= $272,008 / $961,650

= 28.29%

d.

Total cost	$183
Markup ($183 * 28.29%)	$52
Selling Price	$235