Price Setting: Multiple Products (L02) Comtel Electronics Company\'s predicted 2

Question

Price Setting: Multiple Products (L02) Comtel Electronics Company's predicted 2014 variable and fixed costs are as follows: Comtel Electronics, Inc., is a small company producing a wide variety of computer interface devices. Per-unit manufacturing cost information about one of these products, a high-capacity flash drive, is as follows: Variable selling and administrative costs for the flash drive is $4 per unit. Management has set a 2014 target profit of $200,000 on the sale of the flash drive. Required Determine the markup percentage on variable costs required to earn the desired profit. Use variable cost markup to determine a suggested selling price for the flash drive. For the flash drive, break the markup on variable costs into separate parts for fixed costs and profit. Explain the significance of each part. Determine the markup percentage on manufacturing costs required to earn the desired profit. Use the manufacturing costs markup to determine a suggested selling price for the flash drive. Evaluate the variable and the manufacturing cost approaches to determine the markup percentage.

Explanation / Answer

a) marup % on variable cost No. of Units=400000/5 as variable manufacturing cost determines no. of units produced 80000 First calculate=Desired Profit+Fixed Cost/Units pRoduced (200000+310400)/80000 6.38 per unit Markup % on Variable cost=6.38/24*100 26.6 % b) variable Cost per unit+markup=sales price $20+4+6.38 $30.38 Ans c) Breakup ratio for fixed Cost=310400/510400 0.61 Breakup ratio for profit=200000/510400 0.39 Fixed Cost 6.38*61% 3.89 $ Profit 6.38*30% 1.91 $ d) markup% on manufacturing cost (200000+660000)/80000 10.75 per unit Markup % on manufacturing cost=10.75/27*100 39.8 % Ans e) Sales Price=27+10.75 37.75 Ans

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