RooPhone Inc. uses the product cost concept of applying the cost-plus approach t

Question

RooPhone Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,000 units of cellular phones are as follows:                           (6 points)<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Variable costs                                                  Fixed Costs:

Direct materials                       $625,000                    Factory overhead                     $215,000

Direct labor                     225,000                    Selling & Admin. expenses          75,000

Factory Overhead           200,000

Selling & admin. Exp. 150,000

                                    $1,200,000

RooPhone desires a profit equal to a 25% rate of return on invested assets of $400,000.

a.) Determine the amount of desired profit.

b.) Determine the product cost per unit for the production of 5,000 phones.

c.) Determine the total cost markup percentage (rounded to 2 decimal places) using the product cost concept.

d.) Determine the selling price of each cellular phone. Round to nearest dollar.

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Desired Profit = 400000*.25 = 100000

Part B:

Product Cost Per Unit = 625000 + 225000 + 200000 + 215000 = 253

Part C:

Mark Up % = 100000/(253*5000 + 150000 + 75000) = 6.71%

Part D

Selling Price = 253*(1+.0671) = 270

Thanks.

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