Variable Cost Concept of Product Pricing StarMed Products Inc. uses the product
ID: 2455884 • Letter: V
Question
Variable Cost Concept of Product Pricing
StarMed Products Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 100,000 units of medical tablets are as follows:
Variable costs:
Direct materials: $270 per unit
Direct labor: 60
Factory overhead: 90
Selling and admin exp: 45
Total: $465 per unit
Fixed costs:
Factor overhead: $2,400,000
Selling and admin exp: 1,100,000
StarMed Products desires a profit equal to a 20% rate of return on invested assets of $15,000,000.
a. Determine the variable costs and the cost amount per unit for the production and sale of 100,000 units of medical tablets.
Total variable costs: $__
Cost amount per unit: $__ per unit
b. Determine the variable cost markup percentage per unit. Round your percentage answer to two decimal places. ___%
c. Determine the selling price per unit. Use the rounded variable cost markup percentage in your calculations, and round the amount of the markup to the nearest whole dollar. $__ per unit
Explanation / Answer
Statement showing computations Particulars Amount Variable Costs: Direct Materials @270 27,000,000.00 Direct Labour @60 6,000,000.00 Factory Overhead@90 9,000,000.00 Variable Costs 42,000,000.00 Fixed Costs 2,400,000.00 Total Manufacturing Costs 44,400,000.00 Manu Cost per unit 444.00 Selling and admin Costs: Variable 4,500,000.00 Fixed 1,100,000.00 Total Selling and admin 5,600,000.00 Total Costs of goods 50,000,000.00 Cost per unit 500.00 Total Markup = 15,000,000*20% 3,000,000.00 Mark up pu = 3,000,000/100,000 30.00 Markup % = 30/465 6.45% Selling price per unit = 500 + 30 530.00
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