Question

Total Cost Concept of Product Pricing

Voice Com, Inc., produces and sells cellular phones. The costs of producing and selling 6,000 units of cellular phones are as follows:

Total Cost Concept of Product Pricing Voice Com, Inc., produces and sells cellular phones. The costs of producing and selling 6,000 units of cellular phones are as follows: Variable costs: Direct materials Fixed costs: Factory overhead $248,600 $ 82 per unit 38 Direct labor Selling and admin. exp. 87,400 Factory overhead Selling and admin. exp. Total $164 per unit Voice Com desires a profit equal to a 14% rate of return on invested assets of $735,430. Assume that Voice Com, Inc., uses the total cost concept of applying the cost-plus approach to product pricing. a. Determine the total costs and the total cost amount per unit for the production and sale of 6,000 units of cellular phones. Round the cost per unit to two decimal places. Total cost Cost amount per unit b. Determine the total cost markup percentage (rounded to two decimal places) for cellular phones. % c. Determine the selling price of cellular phones. Round to the nearest cent. per phone

Answer 1

Part 1

Total cost	$1320000
Cost amount per unit	$220

Total costs:
Variable costs	984000
Fixed costs (248600+87400)	336000
Total costs	$1320000
Number of units produced	60000
Cost per unit	$220

Variable costs = total variable cost per unit * number of units produced = 164*6000 = 984000

Fixed costs = fixed factory overhead + fixed selling and administrative expenses = 248600+87400 = 336000

Cost per unit = total costs / number of units produced = 1320000/6000 = 220

Part B

Markup percentage

7.80%

Markup percentage = desired profit / total costs

Desired profit = invested assets * rate of return = 735430*14% = 102960.20

Markup percentage = 102960.20/1320000 = 7.80%

Part C

Selling price

$237.16 per phone

Cost per unit	$220
Markup (220*7.80%)	17.16
Selling price	$237.16