Having trouble with the \"Product Cost Concept\": Product Cost Concept of Produc
ID: 2541032 • Letter: H
Question
Having trouble with the "Product Cost Concept":
Product Cost Concept of Product Pricing Willis Products Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 6,000 units of medical tablets are as follows: Variable costs per unit: Fixed costs $109 40 34 27 $210 Direct materials Factory overhead $228,000 Direct labor Selling and admin. exp. 78,000 Factory overhead Selling and admin. exp. Total Willis Products desires a profit equal to a 20% rate of return on invested assets of $552,000. a. Determine the total manufacturing costs for the production and sale of 6,000 units Total Manufacturing Costs Variable Fixed factory overhead TotalExplanation / Answer
A
Calculation of total manufacturing cost for 6,000 units
Variable costs:
Direct material ($109*6,000)
$654,000
Direct labour ($40*6,000)
$240,000
Factory Overheads ($34*6,000)
$204,000
Total Variable cost (A)
$1,098,000
Fixed factory overhead costs (B):
$228,000
Total (C=A+B)
$1,326,000
A
Cost per unit for the production and sale of 6,000 units
Total manufacturing costs (C)
$1,326,000
No of units (D)
6,000
Cost per unit (E=C/D)
$221
Calculation of Product markup on cost & Selling price per unit
Total cost:
Total manufacturing costs (C)
$1,326,000
Add: Variable selling cost ($27*6000)
$162,000
Add: Fixed selling costs
$78,000
Total cost (F)
$1,566,000
Add: Desired profit ($552,000*20%) (G)
$110,400
Total selling price for 6,000 units (H=F+G)
$1,676,400
B
Product cost markup = Profit/cost*100
Product cost markup (110,400/1,566,000*100)
7.05%
C
Selling price per unit (1,676,400/6000)
$279.40
A
Calculation of total manufacturing cost for 6,000 units
Variable costs:
Direct material ($109*6,000)
$654,000
Direct labour ($40*6,000)
$240,000
Factory Overheads ($34*6,000)
$204,000
Total Variable cost (A)
$1,098,000
Fixed factory overhead costs (B):
$228,000
Total (C=A+B)
$1,326,000
A
Cost per unit for the production and sale of 6,000 units
Total manufacturing costs (C)
$1,326,000
No of units (D)
6,000
Cost per unit (E=C/D)
$221
Calculation of Product markup on cost & Selling price per unit
Total cost:
Total manufacturing costs (C)
$1,326,000
Add: Variable selling cost ($27*6000)
$162,000
Add: Fixed selling costs
$78,000
Total cost (F)
$1,566,000
Add: Desired profit ($552,000*20%) (G)
$110,400
Total selling price for 6,000 units (H=F+G)
$1,676,400
B
Product cost markup = Profit/cost*100
Product cost markup (110,400/1,566,000*100)
7.05%
C
Selling price per unit (1,676,400/6000)
$279.40
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