Question

The cost and production data in 2008 for a manufacturing company in Tennessee is provided in...

The cost and production data in 2008 for a manufacturing company in Tennessee is provided in the table below.

• Material and Parts Cost: $1,500,000
• Labor Costs: $2,000,000
• Overhead Cost: $2,500,000
• Annual Production Quantity: 500,000 units

The selling price is fixed adding a 40% mark- up on the production cost. The selling price/unit
is____________.

A. $16.80 B. $9.80 C. $12.00 D. $14.20

Business   Economics   
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Homework Answers

Answer #1

Solution. (A)

It is given that,

Material and Parts Cost: $1,500,000
Labor Costs: $2,000,000
Overhead Cost: $2,500,000

Therefore, total cost of production is the sum of all the above costs

Total cost = 1,500,000 + 2,000,000 + 2,500,000 = $ 6,000,000


Annual Production Quantity = 500,000 units

Therefore, production cost per unit is = Total cost / Total quantity produced = 6,000,000/500,000 = $ 12 per unit

Since, selling price is fixed at 40% higher than production cost, selling price per unit = 12 x 1.40 = $ 16.8 per unit.

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