Question

# Product Cost Concept of Product Pricing Willis Products Inc. uses the product cost concept of applying...

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 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