Question

Variable Cost Method of Product Pricing

Smart Stream Inc. produces and sells cell phones. The costs of producing and selling 4,500 units of cell phones are as follows:

Variable costs:			Fixed costs:
Direct materials	$ 70	per unit	Factory overhead	$141,400
Direct labor	32		Selling and admin. exp.	49,700
Factory overhead	21
Selling and admin. exp.	17
Total variable cost per unit	$140	per unit

Smart Stream Inc. desires a profit equal to a 15% rate of return on invested assets of $490,000.

Assume that Smart Stream Inc. uses the variable cost method of applying the cost-plus approach to product pricing.

a. Determine the variable costs and the variable cost amount per unit for the production and sale of 4,500 units of cellular phones.

Total variable cost	$
Variable cost amount per unit	$

b. Determine the variable cost markup percentage for cellular phones.
%

c. Determine the selling price of cellular phones. Round to the nearest cent.
$ per cellular phone

Answer 1