AA 25-1 Assume Apple is designing a new smartphone. Each unit of this new phone is...
AA 25-1 Assume Apple is designing a new smartphone. Each unit of this new phone is expected to require $230 of direct materials, $10 of direct labor, $20 of variable overhead, and $20 of variable selling and administrative costs. 1. If Apple uses the variable cost method to set selling prices and plans a markup of 200% of variable costs, what is the expected selling price per unit of this new phone? 2. Assume that Apple is a “price taker” and the market sales price for this type of phone is $800 per unit. Compute Apple’s target cost if the company desires a profit of 60% of sales price.
Homework Answers
| 1. If Apple uses the variable cost method to set selling prices and plans a markup of 200% of variable costs, what is the expected selling price per unit of this new phone? | ||
| Direct Materials | $230 | |
| Direct labor cost | $10 | |
| Variable overhead costs | $20 | |
| Variable selling and administrative costs | $20 | |
| Total variable cost | $280 | |
| Add: | Markup (280*200%) | $560 |
| Selling Price | $840 | |
| 2. Assume that Apple is a “price taker” and the market sales price for this type of phone is $800 per unit. Compute Apple’s target cost if the company desires a profit of 60% of sales price. | ||
| Market Sales Price | $800 | |
| Less: | Desired Profit (60% of $800) | $480 |
| Target Cost | $320 | |
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