Variable Cost Concept of Product Pricing Voice Com, Inc, produces and sells cell
ID: 2592893 • Letter: V
Question
Variable Cost Concept of Product Pricing Voice Com, Inc, produces and sells cellular phones. The costs of producing and selling 7,500 units of cellular phones are as follows: Variable costs: Fixed costs: Direct materials 65 per unit 30 20 15 Factory overhead $310,200 Direct labor Selling and admin. exp. 109,050 Factory overhead Selling and admin. exp. Total voice com desires a profit equal to a 15% rate of return on invested assets of $455,000. Assume that Voice Com, Inc., uses the variable cost concept of applying the cost-plus approach to product pricing. a. Determine the variable costs and the variable cost amount per unit for the production and sale of 7,500 units of cellular phones Total variable costs Variable cost amount per unit b. Determine the variable cost markup percentage for cellular phones. 130 per unit c. Determine the selling price of cellular phones. Round to thelnearest cent. per phoneExplanation / Answer
a.
Total variable cost = $130*7,500 = $ 975,000
Variable cost amount per unit remains same as $130
b.
Desired Profit is 15% of $455,000= $68,250
Total Fixed Cost = $ 310,200 + $ 109,050 = $ 419,250
Assume 'x' is the selling price then sales amount for 7,500 units is 7,500 x
(Fixed Cost + Desired Profit) /Contribution=Required Sales
($ 419,250+$68,250)/(x-130)=7500
$487,500=7500x-130*7500
$487,500+975,000=7500x
x=1462,500/7,500=195
Variable cost mark up %
Selling Price 195 100%
Less :Variable cost 130 66.67%
______
Contribution per unit 65 33.33%
c. Selling Price - $195
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