E12-15 Total cost concept of product costing StarMed Products Inc. uses the tota
ID: 2517445 • Letter: E
Question
E12-15 Total cost concept of product costing StarMed Products Inc. uses the total 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: obj 2 d. Selling price, $530.00 Variable costs: Fixed costs: $270 per unit Direct materials Direct labor Factory overhead Selling and admin. exp. Total Factory overhead Selling and admin. exp. $2,400,000 1,100,000 60 90 -45 5465 per unit Staked Products desires a profit equal to a 20% rate of return on invested assets of $15,000,000. a. Determi b. Determine the total costs and the cost amount per unit for the production and sale of ine the amount of desired profit from the production and sale of 100,000 units. 100,000 units. c. Determine the total cost markup percentage per unit. d. Determine the selling price per unit.
Explanation / Answer
Answer a
Desired Profit = Invested Assets * Rate of return = $15,000,000 * 20 % = $3,000,000
Answer b
Total Variable costs = $465 * 100,000 units = $46,500,000
Total Costs = Total variable costs + Total fixed costs = $46,500,000 +2,400,000 + 1,100,000 = $50,000,000
Per unit cost = Total costs / Production & sales units = $50,000,000 / 100,000 units = $500 per unit
Answer c
Cost markup percentage per unit = Desired Profit / Total costs = ($3,000,000 / $50,000,000 ) * 100 = 6 %
Answer d
Selling Price per unit = Per unit cost * (100 + Cost markup percentage) % = $500 * 106 % = $530 per unit
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