Product Cost Method of Product Costing Smart Stream Inc. uses the product cost m

Question

Product Cost Method of Product Costing Smart Stream Inc. uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 cell phones are as follows: Variable costs per unit: Fixed costs: $150 Factory overhead Selling and administrative expenses Direct materials 350,000 Direct labor 25 140,000 Factory overhead Selling and administrative expenses 40 25 Total variable cost per unit $240 Smart Stream desires a profit equal to a 30% return on invested assets of $1,200,000. a. Determine the amount of desired profit from the production and sale of 10,000 cell phones. b. Determine the cost per unit for the production of 10,000 units of cell phones. )per unit c. Determine the product cost markup percentage for cell phones. d. Determine the selling price of cell phones. Round to the nearest dollar Cost Markup Selling price per unit per unit per unit

Explanation / Answer

a. Amount of desired profit = $1200000 x 30% = $360000

b. Cost per unit = Variable cost per unit + (Fixed costs/ No. of units)

= $240 + ($490000/ 10000)

= $289

c. Cost markup % = ($360000/ 10000)/ $289 = 12.5%

d.

Cost $289 per unit Markup $36 per unit Selling price $325 per unit

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