Product Cost Method of Product Costing Voice Com, Inc., uses the product cost co

Question

Product Cost Method of Product Costing

Voice Com, Inc., uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 4,700 units of cell phones are as follows:

Voice Com desires a profit equal to a 14% rate of return on invested assets of $599,500.

a. Determine the amount of desired profit from the production and sale of 4,700 units of cell phones.
$

b. Determine the product cost per unit for the production of 4,700 of cell phones. If required, round your answer to nearest dollar.
$ per unit

c. Determine the product cost markup percentage (rounded to two decimal places) for cell phones.
%

d. Determine the selling price of cell phones. Round to the nearest dollar.

Variable costs: Fixed costs: Direct materials $74 per unit Factory overhead $200,400 Direct labor 31 Selling and admin. exp. 69,000 Factory overhead 25 Selling and admin. exp. 21 Total variable cost per unit $151 per unit

Explanation / Answer

Total Unit produced is 4700 so multiply all the variable cost per unit with appropriate rate

Working note 1

a)Desired profit is 14% return on invested asset of $599,500 which is = $599,400*14% = $83,916

b) Product Cost per unit will be Total Cost divided by number of units produced. Hence ,

$979,100/4700 = $208.32 product cost per unit.

c) Markup on product cost = Sales price per unit - Product cost per unit = $226.14-$208.32 = 8.55% of markup.

Product cost per unit $208.32

d) Cost per unit = $208.32. Sales price per unit =$226.14. Markup per unit = $17.82 Refer the above table

All the figues are rounded of

Desired Profit formula = Contribution + Fixed Cost

Sales = Contribution + variable cost

Use all the above formulas it will surely help.

Particulars Per unit $ Amount in $ Sales (C+B) 226.17 $1,063,016 Direct Material 74 $347,800 Direct labour 31 $145,700 Factory overhead 25 $117,500 Selling and Admin cost 21 $98,700 Totat Variable cost (B) 151 $709,700 Contribution C= (E+D) $353,316 Factory Overhead $200,400 Selling and Admin exp $69,000 Total Fixed Cost (D) $269,400 Total Cost (B+D) 208.32 $979,100 Desired Profit see working note 1. ( E)    $83,916

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