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:

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.

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.
$_________

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

Explanation / Answer

(a)Computation of the amount of Desired Profit $642,500 x 5%   = $32,125 (b) Computation of Total Manufacturing Cost Variable cost          25,000 units @ $8.50             $212,500 Fixed cost              $25,000 + $17,000                  $42,000 Total manufacturing cost                                   $254,500 Cost per unit = $254,500/25,000         = $10.18 (c ) Computation of Manufacturing Costs and cost amount per unit Total manufacturing cost                                   $254,500     Add desired profit $642,500 x 5%                        $32,125     Total Sales                                                       $286,625     markup percentage   = $32,125 x 100 / $254,500 = 12.62% (d) Computation of selling price of Product K    Total manufacturing cost                                   $254,500      Add desired profit $642,500 x 5%                        $32,125    Total Sales                                                       $286,625       $286,625 / 25,000 = $11.465

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