6. Setting product selling prices Motion Comfort is a chair manufacturer. The co

Question

6. Setting product selling prices

Motion Comfort is a chair manufacturer. The company is close to introducing a new ergonomic chair that it believes will be a huge success. The company's president would like you to compute the normal selling price for the chair based on the total cost concept, the product cost concept, and the variable cost concept. An accounting intern accumulated the following information:

Please complete the following three questions:

A. What is the normal selling price of Motion Comfort's new chair based on the total cost concept?

B. What is the normal selling price of Motion Comfort's new chair based on the product cost concept? Round calculations to the nearest penny (for example, $413.15) and the nearest tenth of a percent (for example, 15.5%).

C. What is the normal selling price of Motion Comfort's new chair based on the variable cost concept? Round calculations to the nearest penny and the nearest tenth of a percent.

Manufacturing costs for 7,000 chairs:         Direct materials $1,135,750         Direct labor 560,000         Factory overhead (40% variable) 299,250 Selling and administrative expenses:            Variable expenses $78,750            Fixed expenses 26,250 Total assets $1,000,000 Desired rate of return 21%

Explanation / Answer

Answer A= $330

Here is the working as follow-

Answer B= $330.03

Answer C= 330.13

Total Cost Pricing Approach Manufacturing costs: Direct materials 1135750 Direct labor 560000 Variable factory overhead 119700 Fixed factory overhead 179550 1 Total manufacturing cost 1995000 Selling and administrative (S&A) expenses: Variable expenses 78750 Fixed expenses 26250 2 Total S&A expenses 105000 3 Total cost 2100000 Expected number of units to be sold 7000 4 Total cost per unit $2,100,000 ÷ 7,000 units 300 Total assets 10,00,000 Desired rate of return 21% 5a Desired profit 210000 5b Markup percentage 210,000 ÷ 2,100,000 10% 5c Markup per unit $300 per unit x 10% $ 30 per unit 6 Selling price $300.00 + $30 $330

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