Question

In order to sell a product at a profit, the product must be priced higher than the total cost to build the unit, plus period expenses and overhead.

At the end of last year, Digby had their product Daze aimed at the Americas Budget segment. Use the Globe's Product Analysis to find Daze's production cost (labor + materials) in the Americas region. Exclude possible inventory carrying costs. Assume period expenses and overhead total 50% of their production cost.

Name Daze Units Sold 987 Price $23 Customer Satisfaction 21 Accy 7.2 Speed 7.2 Service Life 14,000 Age 3.3 Region Kit Yes Material Costs $6.79 Labor Costs $4.56 Contrib. Margin 49.27%

What is the minimum price the product could have been sold for in the American region to cover the unit cost, period expenses, and overhead?

a. $17.02
b. $11.35
c. $23.00
d. $5.67

Answer 1

$17.02

Step-by-step explanation:

The computation of the minimum price of the selling price is shown below:

= Material Costs per unit + Labor Costs per unit × (percentage + percentage given)

= $6.79 + $4.56 × (100% + 50%)

= $11.35 × 150%

= $17.02

We simply added the material cost per unit, labor cost per unit and the overhead cost allocation rate.

All other information which is given is not relevant. Hence, ignored it