Use product cost mark up approach to calculate necessary sales price per unit 3.

ID: 2512257 • Letter: U

Question

Use product cost mark up approach to calculate necessary sales price per unit

3. Matthews Industries makes solvent and is suffering from intense competition. Key data are as follows: Direct materials Direct labor Variable manufacturing costs Variable selling and administrative costs Fixed manufacturing overhead Fixed selling and administrative costs S27.30 per unit S9.50 per unit S9.00 per unit S5.00 per unit S42,000 per month $24,100 per month Sales units are expected to be 1875 per month. What is the sales price per unit necessary to achieve a monthly net profit of $50,000 long term, using the product cost mark up approach?

Explanation / Answer

Answer

Per unit

Direct Materials

27.3

Direct Labor

9.5

Variable manufacturing cost

Variable selling & administrative cost

Total Variable cost

$50.8

Sales Revenue

1875x

Variable Cost [1875 units x $50.8]

$95250

Fixed Cost [total]

$66100

Net Profit

$50000

Sales Revenue - Variable Cost - Fixed Cost = Net Profit

1875x - 95250 - 66100 = 50000

1875x - 161350 = 50000

1875x = 161350 + 50000

1875x = 211350

x = 211350 / 1875

x = $112.72