Question

Dotterel Corporation uses the variable cost concept of product pricing. Below is cost information for the production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to an 11.2% rate of return on invested assets of $350,000. Fixed factory overhead cost $105,000 Fixed selling and administrative costs 35,000 Variable direct materials cost per unit 4.34 Variable direct labor cost per unit 5.18 Variable factory overhead cost per unit 0.98 Variable selling and administrative cost per unit 0.70 The variable cost per unit for the production and sale of the company's product is

Answer 1

In a perfectly competitive market, Doggies Paradise Inc. calculates its total revenue, marginal revenue, total cost, and marginal cost for different output levels to determine the profit-maximizing quantity, which occurs where marginal revenue equals marginal cost.

Step-by-step explanation:

When we talk about pricing in the context of a perfectly competitive firm, we are often referring to the ability of the firm to efficiently allocate resources to maximize profit given the market conditions. Doggies Paradise Inc., a hypothetical company that sells winter coats for dogs, operates within such a market structure. In analyzing their costs and revenues, we focus on concepts like total revenue, marginal revenue, total cost, and marginal cost. These metrics are crucial for understanding how many units the company should produce to maximize profit.

For instance, if Doggies Paradise Inc. sells each dog coat for $72 and has varying total variable costs ranging from $64 to $270 depending on the number of units, we can calculate their total revenue and marginal revenue by multiplying the number of units sold by the price. Total cost is calculated by adding fixed costs to the total variable costs at each level of output. Marginal cost, which is the cost of producing an additional unit, is calculated by taking the change in total variable costs when an additional unit is produced.

The profit-maximizing quantity is where marginal revenue equals marginal cost, as producing beyond this point would not add to profits and might even decrease them. This concept is fundamental in microeconomic theory and applies widely in business decision-making contexts.

Answer 2

$11.2 per unit

Step-by-step explanation:

The computation of the variable cost per unit is shown below:

= Variable direct materials cost per unit + Variable direct labor cost per unit + Variable factory overhead cost per unit + Variable selling and administrative cost per unit

= $4.34 per unit + $5.18 per unit + $0.98 per unit + $0.70 per unit

= $11.2 per unit

We simply added the entire variable cost per unit so that the accuracy per unit could be reached