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 $105,000Fixed selling and administrative costs 35,000Variable direct materials cost per unit 4.34Variable direct labor cost per unit 5.18Variable factory overhead cost per unit 0.98Variable selling and administrative cost per unit 0.70The dollar amount of desired profit from the production and sale of the company's product isa.$89,600b.$70,000c.$39,200d.$84,000

Answer 1

$39,200

Step-by-step explanation:

The computation of sales Price per unit is shown below:-

Required return

= $350,000 × 11.2%

= $39,200

Assuming that all the 35000 units are sold, the return per unit

= $39200 ÷ $35,000

= 1.12

Total variable cost per unit = 11.2 %

So,

Sales per unit = (Sale price per unit × sold units) - (Sold units × Total variable cost per unit) - (Factory overhead cost + Sold units)

= (Sale price per unit × 35,000) - (35,000 × 11.2%) - ($105,000 + $35,000)

= $39,200

Therefore for computing the sales per unit we simply applied the above formula.