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

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