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

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

$38,700

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

Fixed factory overhead cost

$38,700

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

Explanation / Answer

Magpie desired profit = 25%*700,000 = $175,000

Variable cost = 4.60+1.88+1.13+4.50 = $12.11*60,000 = $726,600

Fixed cost = $46,200

Sales = Variable cost+fixed cost+profit = $947,800

The unit selling price for the company’s product is = Sales/ no. of units = $15.80

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