Product Cost Concept of Product Pricing Mademoiselle Company produces women\'s h

ID: 2484055 • Letter: P

Question

Product Cost Concept of Product Pricing

Mademoiselle Company produces women's handbags. The cost of producing 1,290 handbags is as follows:

The selling and administrative expenses are $26,400. The management desires a profit equal to 14% of invested assets of $505,000.

If required, round your answers to nearest whole number.

a. Determine the amount of desired profit from the production and sale of 1,290 handbags.
$

b. Determine the product cost per unit for the production of 1,290 handbags.
$ per unit

c. Determine the product cost markup percentage for handbags.
%

d. Determine the selling price of handbags. Round your answers to nearest whole value.

Direct materials $15,400 Direct labor 8,700 Factory overhead 6,000 Total manufacturing cost $30,100

Solution:

a) Desired Profit from the production and sale of 1290 handbags = Investment in Assets x Desired Profit on Investment = $505,000 x 14% = $70,700

(b) Product Cost Per Unit for production of 1290 handbags = Total Per Unit Manufacturing Cost + Per Unit Selling and admin expenses

= ($30,100 / 1290) + (26,400 / 1290)

= 23.33 + 20.47

= $43.80 per handbag

C) Product Cost Markup percentage for handbags

Desired Profit Per handbag = $70,700 / 1290 = $54.806

Total Cost $43.80 per handbag

Markup percentage for handbags = Per Unit Desired Profit / Per Unit Total Cost x 100 = $54.806 / $43.80 x 100 = 125.13% or 125%

Cost = $44 per unit

Mark Up $55 per unit

Selling Price = $99 per unit

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