Question

Variable Cost Concept of Product Pricing

Willis Products Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 7,000 units of medical tablets are as follows:

Variable costs per unit:					Fixed costs:
	Direct materials	$109				Factory overhead	$266,000
	Direct labor	40				Selling and admin. exp.	91,000
	Factory overhead	34
	Selling and admin. exp.	27
Total		$210

Willis Products desires a profit equal to a 25% rate of return on invested assets of $600,012.

a. Determine the variable costs and the cost amount per unit for the production and sale of 7,000 units of medical tablets.

Total variable costs	$
Variable cost per unit	$ per unit

b. Determine the variable cost markup percentage per unit. Round your percentage answer to one decimal place.
%

c. Determine the selling price per unit. Use the rounded variable cost markup percentage in your calculations, and round the amount of the markup to the nearest whole dollar.
$ per unit

For part b I keep doing the calculations and keep getting 10.2% which the system is telling me is incorrect.

For part C I keep doing the calculations and keep getting 231 which the system is also telling me is incorrect.

Answer 1

a. Total variable costs = $210 x 7000 = $1470000

Variable cost per unit = $210 per unit

b. Variable cost markup percentage per unit: 34.5%

Markup percentage = (Desired profit + Total fixed costs)/Total variable costs

Desired profit = $600012 x 25% = $150003

Total fixed costs = $266000 + $91000 = $357000

Total variable costs = $1470000

Markup percentage = ($150003 + $357000)/$1470000 = $507003/$1470000 = 34.49% = 34.5%

c. Selling price per unit: $282

Variable cost per unit = $210

Markup per unit = $210 x 34.5% = $72.45 = $72

Selling price per unit = $210 + $72 = $282