Question

#6

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 4,970 units of cell phones are as follows:

Variable costs:						Fixed costs:
	Direct materials		$60	per unit			Factory overhead	$198,500
	Direct labor		37				Selling and admin. exp.	71,000
	Factory overhead		22
	Selling and admin. exp.		21
		Total variable cost per unit	$140	per unit

Voice Com desires a profit equal to a 13% rate of return on invested assets of $600,700.

a. Determine the amount of desired profit from the production and sale of 4,970 units of cell phones.
$

b. Determine the product cost per unit for the production of 4,970 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

a
Amount of desired profit	78091	=600700*13%
b
Direct materials	60
Direct labor	37
Variable Factory overhead	22
Fixed Factory overhead	39.94	=198500/4970
Product cost per unit	158.94
c
Variable Selling and admin. exp.	104370	=4970*21
Fixed Selling and admin. exp.	71000
Amount of desired profit	78091
Total markup required	253461
Markup per unit	51.00	=253461/4970
Product cost markup percentage	32.09%	=51/158.94
d
Total Cost	158.94
Markup	51.00
Selling price	209.94