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Product Cost Method of Product Costing

MyPhone, Inc., uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 5,190 units of cell phones are as follows:

Variable costs: | Fixed costs: | |||||||

Direct materials | $64 | per unit | Factory overhead | $200,900 | ||||

Direct labor | 39 | Selling and admin. exp. | 70,600 | |||||

Factory overhead | 28 | |||||||

Selling and admin. exp. | 18 | |||||||

Total variable cost per unit | $149 | per unit |

MyPhone desires a profit equal to a 15% rate of return on invested assets of $598,200.

**a.** Determine the amount of desired profit from
the production and sale of 5,190 units of cell phones.

$__________

**b.** Determine the product cost per unit for the
production of 5,190 of cell phones. If required, round your answer
to nearest dollar.

$_________ per unit

**c.** Determine the product cost markup percentage
(rounded to two decimal places) for cell phones.

________%

**d.** Determine the selling price of cell phones.
Round to the nearest dollar.

Total Cost | $_________per unit |

Markup | __________per unit |

Selling price | $_________per unit |

Answer #1

**Solution a:**

Amount of desired profit from the production and sale of 5,190 units of cell phones = $598,200* 15% = $89,730

**Solution b:**

Product cost per unit for the production of 5,190 of cell phones = Variable production cost + Fixd factory overhead

= ($64 + $39 + $28) + ($200,900 / 5190) = $170 per unit

**Solution c:**

Required mark up per unit to cover selling expense and profit = $18 + ($70,600 / 5190) + ($89,730 / 5190)

= $48.89 per unit

Product cost markup percentage = $48.89 / $170 = 28.76%

**Solution d:**

Total cost = $170 per unit

Markup per unit = $48.89 per unit

Selling price = $218.89 per unit

#6
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Variable
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