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, Chester had their product Cake aimed at the Low End segment. Cake's production cost (labor + materials) last year was $14.07 ($5.89 unit labor cost and $8.18 unit material cost). Exclude possible inventory carrying costs. Assume period expenses and overhead total 50% of their production cost. 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?

Answer 1

Chester Cakes

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

= $21.11.

Step-by-step explanation:

a) Data and Calculations:

Production cost:

Labor per unit = $5.89

Materials per unit 8.18

Total production cost $14.07

50% Overhead 7.04

Minimum price = $21.11

b) The minimum price for a unit of the cake includes the total variable production cost and the determined 50% overhead on the production cost to cover period expenses and other overhead costs.