Product Cost Concept of Product Pricing StarMed Products Inc. uses the product c
ID: 2455875 • Letter: P
Question
Product Cost Concept of Product Pricing
StarMed Products Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 100,000 units of medical tablets are as follows:
Variable costs:
Direct materials: $270 per unit
Direct labor: 60
Factory overhead: 90
Selling and admin exp: 45
Total: $465 per unit
Fixed costs:
Factor overhead: $2,400,000
Selling and admin exp: 1,100,000
StarMed Products desires a profit equal to a 20% rate of return on invested assets of $15,000,000.
a. Determine the total manufacturing costs for the production and sale of 100,000 units.
Variable: $__
Fixed factory overhead: 2,400,000
Total: $__
Determine the cost amount per unit for the production and sale of 100,000 units. $__ per unit
b. Determine the product cost markup percentage per unit. Round your percentage answer to two decimal places. __%
c. Determine the selling price per unit. Use the rounded product cost markup percentage in your calculations, and round the amount of the markup to the nearest whole dollar. $__ per unit
Explanation / Answer
Solution a:
Total manufactutung costs for production of 100,000 units = variable manufacturing costs + fixed factory Overhead
= 100,000 * (270 + 60 + 90) + 2,400,000 = 42,000,000 + 2,400,000 = $44,400,000
Cost amount per unit = $44,400,000 / 100,000 = $444 per unit
Solution b:
Desired markup = Desired Return on investment + variable selling & adm. Expensea + fixed selling & adm. Expenses
= 15,000,000*20% + 100,000*45 + 1,100,000
= 3,000,000 + 4,500,000 + 1,100,000
= $8,600,000
Desired markup per unit = 8,600,000/ 100,000 = $86
Product cost markup percentage per unit = desired markup per unit / product cost per unit = $86/ $444 = 19.37%
Solution c:
Product cost per unit =$444
Markup = 444* 19.37% = $86
Selling price per unit = product cost per unit × markup= 444 + 86 = $530
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