Question

Hummingbird Company uses the product cost concept of applying the cost-plus approach to product pricing. The costs and expenses of producing 25,000 units of Product K are as follows:

Variable costs:
Direct materials		$2.50
Direct labor		4.25
Factory overhead		1.25
Selling and administrative expenses		0.50
Total		8.50
Fixed costs:
Factory overhead		$25,000
Selling and administrative expenses		17,000

Hummingbird desires a profit equal to a 5% rate of return on invested assets of $642,500.

a. Determine the amount of desired profit from the production and sale of Product K.
$_________

b. Determine the total manufacturing costs and the cost amount per unit for the production of 25,000 units of Product K.

Total manufacturing costs	$_________
Cost amount per unit	$_________

c. Determine the markup percentage for Product K. Round your answer to one decimal place.
%__________

d. Determine the selling price of Product K. Round your answer to two decimal places.
$_________

Answer 1

• All working forms part of the answer

A	Invested Assets	$              6,42,500.00
B	ROR	5%
C=AxB	Desired profit [Answer to requirement 'a']	$                 32,125.00
A	Total manufacturing variable cost per unit	$                            8.50
B	Units	25000
C=AxB	Total variable manufacturing cost	$              2,12,500.00
D	Fixed factory overhead	$                 25,000.00
E	Fixed selling & admin	$                 17,000.00
F=C+D+E	Total cost [Answer 'b']	$              2,54,500.00
G=F/B	Total cost per unit [Answer b]	$                          10.18
A	Desired profit [Answer to requirement 'a']	$                 32,125.00
B	Units	25000
C=A/B	Desired profit per unit	$                            1.29
D	Total cost per unit [Answer b]	$                          10.18
E=C/D	Mark up percentage [Answer 'c']	12.6%
F=C+D	Selling price per unit [Answer 'd']	$                          11.47