Product Cost Concept of Product Pricing Willis Products Inc. uses the product co

ID: 2556116 • Letter: P

Question

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 4,000 units of medical tablets are as follows: Variable costs per unit: Fixed costs $109 40 34 27 $210 Direct materials Factory overhead $152,000 Direct labor Selling and admin. exp 52,000 Factory overhead Selling and admin. exp Total Willis Products desires a profit equal to a 20% rate of return on invested assets of $384,000. a. Determine the total manufacturing costs for the production and sale of 4,000 units Total Manufacturing Costs Variable Fixed factory overhead Total

Explanation / Answer

Solution

(a) Total Manufacturing cost

Particulars

Amount ($)

Variable ($ 109 + $ 40 + $ 34=183; $ 183 X 4000unit)

732,000

Fixed

152,000

Total Manufacturing cost

$ 884,000

Manufacturing cost per unit =$ 884,000 / 4000 units = $ 221 per unit

(b)Product cost markup percentage

Profit required = 20 % of $ 384,000= $ 76,800

Sales = $ 884,000 + $ 76,800 = $ 960,800

Markup percentage

= Gross Profit Margin/Unit Cost X 100

= ($ 76,800 / $ 960,800 X 100) / $ 221 x 100

= 8/ $ 221 x 100

= 3.6%

(c)Selling price per unit based on markup percentage

=Unit cost of product + Markup

= $ 221 + $ 221 X 3.6%

=$ 221 + $ 8

=$ 229