Question

Steeze Co. makes snowboards and uses the total cost approach in setting product prices. Its costs for producing 10,000 units follow. The company targets a profit of $300,000 on this product.
Variable Costs per Unit Fixed Costs
Direct materials $ 100 Overhead $ 470,000
Direct labor 25 Selling 105,000
Overhead 20 Administrative 325,000
Selling 5
1. Compute the total cost per unit.
2. Compute the markup percentage on total cost. (Round your final percentage answer to 1 decimal place.)
3. Compute the product's selling price using the total cost method.
1 Total cost per unit
2 Markup percentage
3 Selling price

Answer 1

Answer:

1. $240

2. 12.5%

3. $168.75

Explanation:

1. Total cost per unit = Variable cost per unit + Fixed cost Per unit

= $150 + $90

= $240

Where ;

Variable costs per unit = Direct material +Direct labor + Overhead + Selling

= $100 + $25 + $20 + $5

= $150 per unit

Fixed costs per unit = Total fixed cost / Number of units produced

= ($470,000 + $105,000 + $325,000) / 10,000 units

= $900,000 / 10,000

= $90 per unit

2. Mark up percentage on Total cost = Mark-up / Total cost *100

= $300,000 / $2,400,000 * 100

= 12.5%

Where;

Total cost = Total cost per unit * Number of units produced

= $240 * 10,000 units

= $2,400,000

3. Selling price = Total cost per unit + Mark up

= $150 + ($150 * 12.5%)

= $150 + $18.75

= $168.75