Question

La Femme Accessories Inc. produces women's handbags. The cost of producing 800 handbags is as follows: Direct materials$18,000 Direct labor8,500 Factory overhead5,500 Total manufacturing cost$32,000 The selling and administrative expenses are $17,000. The management desires a profit equal to 22% of invested assets of $250,000. a. Determine the amount of desired profit from the production and sale of 800 handbags. b. Determine the product cost per unit for the production of 800 handbags. Round your answer to two decimal places. c. Determine the product cost markup percentage for handbags. d. Determine the selling price of handbags. Round your answers to two decimal places, if necessary.

Answer 1

Answer:

A. Desired Profit = $55,000

B. Product cost = $40

C. The product cost markup percentage = 225%

D. The sale price of handbags = $130 for 1 bag, $104,000 for 800 bags.

Explanation:

Requirement A

Here,

Desired Profit ($) = Invested assets x Desired profit in percentage

Given,

Invested assets = $250,000

Desired profit in percentage = 22%

The amount of desired profit from the production and sale of 800 handbags

= $250,000 x 22%

= $55,000

Requirement B

Product Cost = When the cost is directly related to the production of a specific product, it is called product cost. It means the materials, direct labor, and factory related costs are added to determine the product cost. No selling and administrative expenses are added in calculating product cost.

Given,

Direct materials     $18,000

Direct labor            $ 8,500

Factory overhead  $ 5,500

Total manufacturing cost $32,000

Product cost = $\frac{Total Manufacturing Cost}{Number of bags}$

Product cost for 800 handbags will be = $\frac{32,000}{800}$

Product cost = $40.

Requirement C & D

We know,

The product cost markup percentage = $\frac{Selling price - Product cost}{Product Cost}$ x 100

We get product cost for each bag (from requirement B) = $40

We need to find total selling price for 800 bags =

Product cost + Selling and administrative expenses + desired profit

= $32,000 + $17,000 + $55,000

= $104,000

The sale price for 1 bag = $\frac{104,000}{800}$ = $130

Therefore,

The product cost markup percentage = $\frac{130 - 40}{40}$ x 100

The product cost markup percentage = $\frac{90}{40}$ x 100

The product cost markup percentage = 225%