Question

Smart Stream Inc. uses the total cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 units of cell phones are as follows: Variable costs per unit: Fixed costs: Direct materials $150 Factory overhead $350,000 Direct labor 25 Selling and administrative expenses 140,000 Factory overhead 40 Selling and administrative expenses 25 Total variable cost per unit $240 Smart Stream desires a profit equal to a 30% return on invested assets of $1,200,000.
a. Determine the variable costs and the variable cost amount per unit for the production and sale of 10,000 cellular phones. Total variable cost $ Variable cost amount per unit $
b. Determine the variable cost markup percentage for cellular phones. Round to two decimal places.
c. Determine the selling price of cellular phones. If required, round to the nearest dollar.

Answer 1

Answer:

(a). Total variable Cost = $2,890,000

Total variable Cost Per Unit  = $289  

(b). Variable Cost Markup Percentage = 12.46%

(c). Selling Price Per Unit = $325

Explanation:

According to the scenario, computation of the given data are as follow:-

a). Total Fixed Cost = Selling and Administrative Expenses + Factory Overhead

= $140,000 + $350,000 = $490,000

Fixed Cost Per Unit = Total Fixed Cost ÷ Cost of Produced and Selling Units

= $490,000 ÷ 10,000 = $49

Total variable Cost Per Unit = Fixed Cost Per Unit + Variable Cost Per Unit

= $49 + $240 = $289

Total variable Cost = Cost of Produced and Selling Units × Total Cost Per Unit

= 10,000 × $289 = $2,890,000

b). Desired Profit = Invested Assets × 30%

= $1,200,000 × 30÷100 = $360,000

Variable Cost Markup Percentage = Desired Profit ÷ Total Cost

=$360,000 ÷ $2,890,000 = 0.1246 = 12.46%

c). Selling Price Per Unit = (1 + Variable Cost Markup Percentage) × Total Cost Per Unit

= (1 + 12.46%) × $289

= 1.1246 × $289

= $325