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
Total Manufacturing cost: | ||||
Material (3000 units @114) | 342000 | |||
Labour (3000*42) | 126000 | |||
Overheads (3000*35) | 105000 | |||
Total Variable cost | 573000 | |||
Total Fixed manufacturing cost | 120000 | |||
Total Manufacturing cost: | 693000 | |||
Total Markup requirred: | ||||
Selling and admin expense | ||||
Variable (3000*29) | 87000 | |||
Fixed | 39000 | |||
Total Selling and admin expense | 126000 | |||
Target income | 50400 | |||
($ 252000*20%) | ||||
Total Markup requirred: | 176400 | |||
Total Manufacturing cost | 693000 | |||
% of Markup on Product cost | 25.45% | |||
($ 176400*/693000 *100) | ||||
Total Manufacturing cost | 693000 | |||
Add: markup @25.45% | 176400 | |||
Total sales required | 869400 | |||
Divide; Number of units | 3000 | |||
Sselling price per unitt | 289.8 |
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