Question

2)Torres Inc. recently began production of a new product, the halogen light, which required the investment of $600,000 in assets. The costs of producing and selling 10,00 halogen lights are estimated as follows: Variable costs per unit: Fixed costs: Direct materials $32 Factory overhead $180,000 Direct labor 12 S & A expenses 60,000 Factory overhead 8 S & A Expenses 7 Total variable he costs/unit $59 Torres is considering a selling price for the halogen light. Management has decided to use the cost-plus approach to product pricing and has indicated that the product must earn 10 % return on invested assets.

Answer 1

Answer:

The selling price is $99

Explanation:

The selling price of the product can be computed by adding required profit margin to the unit cost of the product.The required profit margin is the 10% return on invested assets.

Total variable cost           $59*10000                =$590,000

Fixed expenses ($180,000+$60,000)               =$240,000

desired profit margin(10%*$600,000)                =$60,000

Total sales revenue                                              =$990,0000

price per unit=$990,000/10000=$99

The cost-plus approach to product pricing gives $99