Hummingbird Company uses the product cost concept of applying the cost-plus appr

Question

Hummingbird Company uses the product cost concept of applying the cost-plus approach to product pricing. The costs and expenses of producing 25,000 units of Product K are as follows:

Hummingbird desires a profit equal to a 5% rate of return on invested assets of $642,500.

(a) Determine the amount of desired profit from the production and sale of Product K.

$

(b) Determine the total manufacturing costs and the cost amount per unit for the production and sale of 25,000 units of Product K.

Total manufacturing costs: $

Cost amount per unit: $

(c) Determine the markup percentage for Product K. Round to one decimal place.

Markup percentage:  %

(d) Determine the selling price of Product K. Round to two decimal places.

$

Explanation / Answer

(a)

$642,500 x 5%   = $32,125

(b)

Variable cost          25,000 units @ $8.50             $212,500
Fixed cost              $25,000 + $17,000                  $42,000
Total manufacturing cost                                   $254,500

Cost per unit = $254,500/25,000         = $10.18

(c)

Total manufacturing cost                                   $254,500
    Add desired profit $642,500 x 5%                        $32,125
    Total Sales                                                       $286,625

    markup percentage   = $32,125 x 100 / $254,500 = 12.62%

(d)

   Total manufacturing cost                                   $254,500
     Add desired profit $642,500 x 5%                        $32,125
   Total Sales                                                       $286,625

      $286,625 / 25,000 = $11.465

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