Problem 1. B Corp. uses the product cost concept of applying the cost-plus appro

Question

Problem 1. B Corp. uses the product cost concept of applying the cost-plus approach to product pricing. The costs and expenses of producing 35,000 units of a New Product B4 are as follows: Variable costs: Direct materials Direct labor Factory overhead Selling and administrative expenses $3.75 5.45 1.80 3.50 $14,50 Total Fixed costs: Factory overhead $75,000 37,000 Selling and administrative expenses B Corp. desires a profit equal to a 12.5% rate of return on invested assets of $727,500. (a) Determine the amount of desired profit from the production and sale of Product B4. Determine the total manufacturing costs and the cost amount per unit for the production and sale of 35,000 units of Product B4. (b) (c) Determine the markup percentage for Product B4 (d) Determine the selling price of Product B4. Round your markup percentage to one decimal place, and other intermediate calculations and final answer to two decimal places.

Explanation / Answer

Here,

Units Produced and sold : 35000 units

variable cost : 14.50 per unit

fixed cost : 112000

Invested Assets : 727500

A) Desired Profit : 727500*12.50 % = 90938/-

Sales 0f Product = Cost of product + Profit

Cost of Product = Variable cost + Fixed Cost

Variable cost = 14.50 * 35000 = 507500

so cost of product = 507500 + 112000 = 619500

sales of product = 619500 + 90938 = 710438

B) Total Manufacturing Cost = Varialble mfg cost + fixed mfg cost

variable mfg cost = Direc Material + Direct Labour + Factory Overhead = 3.75+5.45+1.80 = 11 per unit

Variablel manufacturing cost = 35000 * 11 = 385000/-

Total mfg cost = 385000 + 75000 = 460000

Now, Cost per unit for production and sale of 35000 units

So, Cost per unit for production = Total mfg cost / 35000 = 460000/35000 = 13.14

Cost per unit for sale of 35000 units = valriable cost + fixed cost for sale

variable cost = 3.50 * 35000 = 122500

Cost per unit for sale of 35000 units - (122500 + 37000) / 35000 = 4.56 per unit

C) Markup Percentage = Profit / Total Cost of Product = 90938 / 619500 = 14.68 %

D) Selling Price of Product = total sales / units

total sales = total cost + profit = 619500 + 90938 = 710438

selling price = 710438 / 35000 = 20.30 per unit

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