Question

Product 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 3,000 units of medical tablets are as follows:

Variable costs per unit:					Fixed costs:
	Direct materials	$114				Factory overhead	$120,000
	Direct labor	42				Selling and admin. exp.	39,000
	Factory overhead	35
	Selling and admin. exp.	29
Total		$220

Willis Products desires a profit equal to a 20% rate of return on invested assets of $252,000.

a. Determine the total manufacturing costs for the production and sale of 3,000 units.

	Total Manufacturing Costs
Variable	$
Fixed factory overhead
Total	$

Determine the cost amount per unit for the production and sale of 3,000 units.
$ per unit

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

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

Answer 1

Answer a
Determination of the total manufacturing costs for the production and sale of 3,000 units.
	Total Manufacturing Costs
Variable [3000 units * $191]	$573,000.00
Fixed Factory Overheads	$120,000.00
Total Manufacturing Costs	$693,000.00
Product cost per unit = Total Manufacturing costs / No.of units produced
Product cost per unit = $693000 / 3000 units = $231 per unit
Answer b
Desired profit per unit = [20% of invested assets i.e. $252000]/3000 units = $16.80 per unit
The product cost markup percentage per unit = Desired profit per unit / Product cost per unit = $16.80 / $231 = 7.3%
Answer c
Determination of selling price per unit
Product cost per unit	$231
Selling and admin cost per unit	$42
[$29 + ($39000 / 3000 units)]
Markup	$17
Selling price per unit	$290