Question

Product Cost Method of Product Costing

Voice Com, Inc., uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 4,890 units of cell phones are as follows:

Variable costs:						Fixed costs:
	Direct materials		$71	per unit			Factory overhead	$201,300
	Direct labor		40				Selling and admin. exp.	71,600
	Factory overhead		25
	Selling and admin. exp.		18
		Total variable cost per unit	$154	per unit

Voice Com desires a profit equal to a 16% rate of return on invested assets of $601,600.

a. Determine the amount of desired profit from the production and sale of 4,890 units of cell phones.
$

b. Determine the product cost per unit for the production of 4,890 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

Answer

A..the amount of desired profit from the production and sale of 4,890 units of cell phones:

$601,600*16%

= $96256

B. the product cost per unit for the production of 4,890 of cell phones:

Particulars	Amount
Variable Cost (4890*$154)	$753060
Fixed Cost ($201,300+$71,600)	$272900
Total Cost	$1025960
Units	4890 units
Cost amount per unit (1025960/4890)	210 per unit

C. The product cost markup percentage:

=Desired Profit / Total Costs

=($96256 / 1025960)*100

=9.38%

D. The selling price of cell phones:

Total Cost	1025960	210
Markup (1025960*9.38%)	96235	19.70
Selling price	1122195	229.70