?Magpie Corporation uses the total cost concept of product pricing. Below is cos

Question

?Magpie Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000.
Fixed factory overhead cost $38,500
Fixed selling and administrative costs 7,500
Variable direct materials cost per unit 4.60
Variable direct labor cost per unit 1.88
Variable factory overhead cost per unit 1.13
Variable selling and administrative cost per unit 4.50
The unit selling price for the company's product is:

Explanation / Answer

The desired profit is: 0.25 x 700,000 = 175,000 Total cost incorporates ALL costs into the product cost Therefore it is the sum of the following costs Fixed factory overhead cost $38,500 Fixed selling and administrative costs 7,500 Variable direct materials cost per unit 4.60 x 60,000 units = 276,000 Variable direct labor cost per unit 1.88 x 60,000 = 112,800 Variable factory overhead cost per unit 1.13 x 60,000 = 67,800 Variable selling and administrative cost per unit 4.50 x 60,000 = 270,000 = 38,500 + 7,500 + 276,000 + 112,800 + 67,800 + 270,000 = 772,600 Let p be unit selling price so that: (60,000 units x p) - 772,600 = 125,000 60,000p = 897,600 p = $14.96

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