Question

Smart Stream Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 cellular phones are as follows:

Variable costs per unit: Fixed costs:
Direct materials $150 Factory overhead $350,000
Direct labor 25 Selling and admin. exp. 140,000
Factory overhead 40
Selling and administrative expenses 25
Total $240
Smart Stream desires a profit equal to a 30% rate of return on invested assets of $1,200,000.

a. Determine the amount of desired profit from the production and sale of 10,000 cellular phones.
$

b. Determine the cost per unit for the production of 10,000 units of cellular phones.
$per unit

c. Determine the product cost markup percentage for cellular phones.
%

d. Determine the selling price of cellular phones. Round to the nearest dollar.

Cost $per unit
Markup $per unit
Selling price $per unit

Answer 1

a) desired return 360,000

b) manufacturing cost $245

c) 27% in dollar:

d) sales price $311

Step-by-step explanation:

desired return: 1,200,000 x 30% = 360,000

Then, fixed cost: 350,000

Variable cost: 150 materials + 25 labor + 40 overhead + 25 S&A = 240 variable

Sales Price = X

We need to solve for the sales price at which the company gain 360,000 dollar:

volume x (sales - variable) - fixed = profit

10,000 x (sales - 240) - 350,000 = 360,000

sales = (360,000 + 350,000) / 10,000 + 240

sales = 311

manufacturing cost:

350,000 / 10,000 = 35 fixed overhead

150 material + 25 labor + 40 variable MO + 35 fixed MO= 245

311 / 245 - 1 = 0,2693877 = 27%