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: Variable costs: Direct materials $2.50 Direct labor 4.25 Factory overhead 1.25 Selling and administrative expenses 0.50 Total 8.50 Fixed costs: Factory overhead $25,000 Selling and administrative expenses 17,000 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 of 25,000 units of Product K. Total manufacturing costs $ Cost amount per unit $ c. Determine the markup percentage for Product K. Round your answer to one decimal place. % d. Determine the selling price of Product K. Round your answer to two decimal places. $

Explanation / Answer

Desired profit = 642500*5%

= 32125$

Total manufacturing cost = 25000* (2.5+4.25+1.25) + 25000

= 200000+25000 = $ 225000

Per unit manufacturing cost = 225000/25000

= $9 per unit

Total cost = 225000 + 12500+17000

= 254500

Cost per unit = 254500/25000 = 10.18 $ per unit

Profit = 32125

Sale = 254500+32125 = $ 286625

Sale price = 286625/25000 = $11.47

Markup percent = (11.47-10.18)/10.18 * 100

=12.67%

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