Question

Mallard Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000. Fixed factory overhead cost $82,000 Fixed selling and administrative costs 45,000 Variable direct materials cost per unit 5.50 Variable direct labor cost per unit 7.65 Variable factory overhead cost per unit 2.25 Variable selling and administrative cost per unit 0.90 The dollar amount of desired profit from the production and sale of the company's product is a. $225,000 b. $220,500 c. $105,840 d. $96,000

Answer 1

Answer:

d. 96,000

Explanation:

Provided required rate of return on investments of $800,000 = 12%

Now desired profit = $800,000 X 12% = $96,000

therefore when fixing the price per unit this profit shall be added, and then reverse calculation is done.

With this we can get the desired profit.

At the last the total of cost and profit shall be divided by number of units to get the selling price per unit.

Therefore desired profit in dollars = $96,000

Answer 2

Answer:

The dollar amount of desired profit from production and sale of the company's product is D) $96,000.

Explanation:

CALCULATING THE TOTAL COST -    

The first step is to calculate the cost of production per unit of product =

Direct material cost + Direct labor cost + Variable factory overhead + Fixed factory overhead cost / Fixed selling and administrative costs

= $5.5 + $7.65 + $2.25 + $82,000 / $45,000

= $16.3 + $1.82

= $17.22

TOTAL COST = $16.3 X $45,000 + $82,000 + $45,000

                       = $860,500

Here we have taken $16.3 because we are taking fixed factory overhead and fixed selling and administrative cost separately.

TOTAL REVENUE = $860,500 + $96,000 ( $800,000 X 12% )

                              = $ 956,500

PROFIT = REVENUE - COST

             = $956,500 - $860,500

             = $96,000