Voice Com, Inc., uses the product cost concept of applying the cost-plus approac
ID: 2477244 • Letter: V
Question
Voice Com, Inc., uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,260 units of cellular phones are as follows: Variable costs: Fixed costs: Direct materials $62 per unit Factory overhead $200,600 Direct labor 35 Selling and admin. exp. 72,000 Factory overhead 25 Selling and admin. exp. 18 Total $140 per unit Voice Com desires a profit equal to a 15% rate of return on invested assets of $600,300. a. Determine the amount of desired profit from the production and sale of 5,260 units of cellular phones. $ b. Determine the cost amount per unit for the production of 5,260 units of cellular phones. If required, round your answer to nearest dollar. $ per unit c. Determine the product cost markup percentage (rounded to two decimal places) for cellular phones. % d. Determine the selling price of cellular phones. Round to the nearest dollar. Cost $ per unit Markup $ per unit Selling price $ per unit
Explanation / Answer
Answer:
a) Voice Com desires a profit equal to a 15% rate of return on invested assets of $600,300.
Hence the amount of desired profit from the production and sale of 5,260 Units of cellular = $600,000 x 15% = $90,000
b) the cost amount per unit for the production of 5,260 units of cellular phones = $192 per unit
Statement of Cost for Producing & Selling 5,260 Units
Variable Cost:
$ / Unit
Total US$
Direct materials
$62
326120
Direct labor
$35
184100
Variable Factory overhead
$25
131500
Variable Selling and admin. Exp
$18
94680
Total Variable Cost
$140
$736,400
Fixed Cost:
Factory overhead
$200,000
Selling and admin. Exp
$72,000
Total Fixed Cost
$272,000
Total Cost (Variable + Fixed)
$1,008,400
Total Production and selling Units
5,260
Product Cost per unit
(Total Cost / Total Units)
$191.71
C) the product cost markup percentage (rounded to two decimal places) for cellular phones
Cost Mark Up percentage = Desired Profit / Total Cost x 100 = $90,000 / $1,008,400 x 100 = 8.925% or 8.93%
D) the selling price of cellular phones
Cost Per Unit = $192
Market Up Per Unit ($192 x 8.93%) = $17.15
Selling Price ($192 + $17.15) = $209.15 or $210
Statement of Cost for Producing & Selling 5,260 Units
Variable Cost:
$ / Unit
Total US$
Direct materials
$62
326120
Direct labor
$35
184100
Variable Factory overhead
$25
131500
Variable Selling and admin. Exp
$18
94680
Total Variable Cost
$140
$736,400
Fixed Cost:
Factory overhead
$200,000
Selling and admin. Exp
$72,000
Total Fixed Cost
$272,000
Total Cost (Variable + Fixed)
$1,008,400
Total Production and selling Units
5,260
Product Cost per unit
(Total Cost / Total Units)
$191.71
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