Arizona Company provided the following information regarding its most recent yea
ID: 2607768 • Letter: A
Question
Arizona Company provided the following information regarding its most recent year of operations Administrative salaries Direct labor Direct raw material Marketing and distribution costs Overheads costs Product design and testing Research and development Sales revenues Sales salaries and commissions Warranty costs $ 24,006 48,000 80,000 60,000 36,000 30,000 40,000 410,000 54,000 4,000 Number of units produced Number of units sold 20,000 20,000 Required Determine the following amounts (a) Total product costs (b) Total upstream costs (c) Total downstream costs (d) Product cost per unit (e) Total cost per unit, including product costs and upstream and downstream costs (f) The selling price per unit that would be required if the company wishes to earn a profit margin equal to 25% of total cost (g) Comment on the company's profitability at its current selling priceExplanation / Answer
Solution:
1) Total product cost
Direct raw material
80000
Direct labor
48000
OH Cost
36000
Total product cost
164000
2) Total upstream cost
Product design and testing
30,000
Research and development costs
40,000
Total upstream cost
70,000
3) Total downstream cost
Administrative salaries
24,000
Marketing and distribution cost
60,000
Sales salaries and commissions
54,000
Warranty costs
4,000
Total downstream cost
142,000
4) Total product cost per unit
164,000 / 20,000 = 8.2 per unit
8.2
5) Total cost per unit
(164,000+70,000+142,000)/20,000 = 18.80
18.8
6) Selling price to earn a profit margin equal to 25% of total cost
(18.80 + 18.8*25%) = 23.50
23.5
7) Current profitability
The company's current selling price of $20.50 ($410,000/20,000 units) covers the product costs and the upstream and downstream costs, however it is not providing the amount of profit that the company would like to earn. Instead of generating a profit margin of 25% of total costs, it is earning a profit margin of nearly 9% of total costs
1) Total product cost
Direct raw material
80000
Direct labor
48000
OH Cost
36000
Total product cost
164000
2) Total upstream cost
Product design and testing
30,000
Research and development costs
40,000
Total upstream cost
70,000
3) Total downstream cost
Administrative salaries
24,000
Marketing and distribution cost
60,000
Sales salaries and commissions
54,000
Warranty costs
4,000
Total downstream cost
142,000
4) Total product cost per unit
164,000 / 20,000 = 8.2 per unit
8.2
5) Total cost per unit
(164,000+70,000+142,000)/20,000 = 18.80
18.8
6) Selling price to earn a profit margin equal to 25% of total cost
(18.80 + 18.8*25%) = 23.50
23.5
7) Current profitability
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.