Answer:
Smart Stream Inc.
1. Total variable costs = $2,400,000
2a. Variable cost per unit = $240
2b. The variable cost markup percentage = 12.46%
2c. Selling price per unit = $325
Explanation:
a) Data and Calculations:
Variable costs per unit:
Direct materials $150
Direct labor 25
Factory overhead 40
Selling and administrative expenses 25
Total $240
Fixed costs:
Factory overhead $350,000
Selling and admin. exp. 140,000
Total fixed costs = $490,000
Smart Stream desires a profit equal to a 30% rate of return on invested assets of $1,200,000
Profit target = $360,000 ($1,200,000 * 30%)
Total variable costs = $2,400,000 ($240 * 10,000)
Variable cost per unit = $240
b. The variable cost markup percentage =
Variable cost markup = $360,000 * $2,400,000/$2,890,000 = $298,962
Variable cost markup percentage = $298,962/$2,400,000 * 100 = 12.46%
Fixed cost markup = $360,000 * $490,000/$2,890,000 = $61,038
Total cost = $2,890,000
Target profit 360,000
Total sales revenue = $3,250,000
Selling price = $325 ($3,250,000/10,000)
