Question

Steeze Co. makes snowboards and uses the total cost approach in setting product prices. Its costs for producing 10,500 units follow. The company targets a profit of $315,000 on this product.

Answer 1

Answer:

$\large \boxed{1.\, \ 239.81; 2.\, 12.5 \, \% ; 3. \ \,270}$

Step-by-step explanation:

Assume the costs are as in this table

$\begin{array}{rrrr}\textbf{Variable costs} & \textbf{per Unit} & \textbf{Fixed} & \textbf{Costs}\\\text{Direct materials} & \ \, 101 & \text{Overhead} & \ \, 471000\\\text{Direct labour} & 26 & \text{Selling} & 104000\\\text{Overhead} & 21 & \text{Administrative} & 326000\\\text{Selling} & 6 & &\\\end{array}$

1. Total cost per unit

(a) Total cost

$\begin{array}{lrcr}\textbf{Item} & & & \textbf{Subtotal}\\\text{Direct materials} & 10500 \times 101 & = & \ \, 1060500\\\text{Direct labour} & 10500 \times 26 & = &273000\\\text{Unit overhead} & 10500 \times 21 & = & 220500\\\text{Unit selling}& 10500 \times 6 & = & 63000\\\text{Fixed overhead} & & = & 471000\\\text{Fixed selling} & & = & 106000\\\text{Administrative} & & = &324000\\\text{TOTAL} & &= &\mathbf{\ \, 2518000}\\\end{array}$

(b) Cost per unit

$\text{Total cost per unit} = \dfrac{\text{Total cost}}{\text{No. of units}} = \dfrac{\text{ \ 2 518 000}}{\text{10 500}}= \textbf{\ 239.81}$

2. Markup percentage

$\text{Total sales = total costs + profit} = 2 518 000 + 315 000 =\, \ 2 833 000\\\\\text{Unit selling price} = \times \dfrac{\text{Total sales}}{\text{No. of units}} = \dfrac{\text{\ 2833000}}{\text{10 500}}= \ 269.81\\\\\text{Markup percentage} = \dfrac{\text{Selling price - Unit cost}}{\text{Unit cost}} \times 100 \, \%\\\\\\= \dfrac{\text{269.81 - 239.81}}{\text{239.81}}\times 100 \,\% = \mathbf{12.5 \, \%}\\\\\text{The markup percentage is \large \boxed{\mathbf{12.5 \, \% }} }$

3. Sales price by total cost method

Assume the markup percentage is 12.5 %.

Sales price = cost + markup percentage × cost  

Sales price = $240 + ( 0.125× $240) = $240+ $30 = $270