Lethal Industries has recently patented a new product called MaxiDrive, an autom
ID: 2632018 • Letter: L
Question
Lethal Industries has recently patented a new product called MaxiDrive, an automobile oil for maximum engine performance. The following annual information was developed by the company's controller for use in price determination:
Variable production costs
$1,860,000
Fixed overhead
620,000
Selling expenses
420,000
General and administrative expenses
230,000
Desired profit
342,000
Annual demand for the product is expected to be 500,000 quarts. Round answers to nearest two decimal places.
a. Compute the projected unit cost for one quart of MaxiDrive
B. Prepare the formulas for computing the markup percentage and the selling price for one quart using the gross margin pricing method
Variable production costs
$1,860,000
Fixed overhead
620,000
Selling expenses
420,000
General and administrative expenses
230,000
Desired profit
342,000
Explanation / Answer
a. Compute the projected unit cost for one quart of MaxiDrive
Projected unit cost for one quart of MaxiDrive = 6.26
Working
B. Prepare the formulas for computing the markup percentage and the selling price for one quart using the gross margin pricing method
Formula:
Markup Percentage = Profit Margin per Unit/ Projected Unit Cost
Markup Percentage = 0.684/6.26
Markup Percentage = 10.926%
Selling price for one quart = 6.26 + 0.684
Selling price for one quart = $ 6.944
Variable production costs $1,860,000 Fixed overhead 620,000 Selling expenses 420,000 General and administrative expenses 230,000 Total Cost $3,130,000 No of unit produced & sold 500,000 Projected Unit Cost = Total Cost/No of unit produced & sold = $6.26Related Questions
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