Question

Problem Data

XYZ Co. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 units are as follows:

XYZ desires profit equal to a 30% rate of return on invested assets of $1,200,000.

Variable Costs per unit:			Fixed costs:
Direct materials	$                 150		Factory Overhead		$         350,000
Direct labor	25		Selling & admin. expense		$         140,000
Factory overhead	40
Selling & Admin expense	25
Total	$                 240

Calculations

1. Compute the product cost and the cost per unit.

Variable Costs?

enter a formula to compute the answer in yellow cells

Fixed Costs?

enter data in blue cells

Total Product Cost?

Cost per unit?

2. Compute the amount of desired profit

____________________________________

3. Compute the markup percentage

Desired Profit?

Total variable selling & admin exp.?

Total fixed selling & admin exp.?

÷

Total Product Cost?

Markup Percentage?

4. Compute the normal selling price

Product Cost per unit?

Markup percentage?

Markup per Unit?

Normal Selling Price?

Answer 1

1) Compute the product cost and the cost per unit.

Variable cost (215*10000)	2150000
Fixed cost	350000
Total product cost	2500000
Cost per unit (2500000/10000)	250 per unit

2) Amount of desired profit = 1200000*30% = 360000

3) Compute markup percentage :

Desired profit = 360000

Variable selling and administrative expense = 10000*25 = 250000

Fixed selling and administrative expense = 140000

Total product cost = 2500000

Markup percentage = 750000*100/2500000 = 30%

4) Product cost per unit = 250

Markup percentage = 30%

Markup per unit = 250*30% = 75

Normal selling price = 250+75 = 325