Question

The following data pertain to L awnMate Corporation’s top-of-the-line lawn mower.

Variable manufacturing cost	$	301
Applied fixed manufacturing cost		57
Variable selling and administrative cost		57
Allocated fixed selling and administrative cost		?

  

To achieve a target price of $518 per lawn mower, the markup percentage is 12.5 percent on total unit cost.

Required:

1.

What is the fixed selling and administrative cost allocated to each unit of LawnMate’s top-of-the-line mower?

2.	For each of the following cost bases, develop a cost-plus pricing formula that will result in a target price of $518 per mower. (Round your percentage values to 2 decimal places (i.e. .1234 should be entered as 12.34).)

		Cost-Plus Pricing Formula
(a)	Variable manufacturing cost	$	=		+	(		%	×		)
(b)	Absorption manufacturing cost		=		+	(		%	×		)
(c)	Total variable cost		=		+	(		%	×		)

Answer 1

Solution 1:

Target price = $518

Markup percentage on total cost = 12.50% on total unit cost

Total unit cost = $518*100/112.50 = $460.44

Allocated fixed selling and administrative cost = $460.44 - $301 - $57 - $57 = $45.44 per unit

Solution 2:

Variable manufacturing cost = $301

Markup on variable manufacturing cost to acheive target price = ($518 - $301) / $301 = 72.09%

Selling price = Variable manufacturing cost + 72.09% of variable manufacturing cost

Absorption manufacturing cost per unit = $301 + $57 = $358

Markup on absorption manufacturing cost to acheive target price = ($518 - $358) / $358 = 44.69%

Selling price = Absorption manufacturing cost + 44.69% of absorption manufacturing cost

Total variable cost = $301 + $57 = $358

Markup on total variable cost to acheive target price = ($518 - $358) / $358 = 44.69%

Selling price = Total variable cost + 44.69% of Total variable cost