Question

Exercise 10-14 Product pricing using total costs LO P1

Steeze Co. makes snowboards and uses the total cost approach in setting product prices. Its costs for producing 16,500 units follow. The company targets a profit of $511,500 on this product.

Variable Costs per Unit				Fixed Costs
Direct materials	$	113		Overhead	$	483,000
Direct labor		38		Selling		103,000
Overhead		33		Administrative		338,000
Selling		8

1. Compute the total cost per unit.
2. Compute the markup percentage on total cost. (Round your final percentage answer to 1 decimal place.)
3. Compute the product’s selling price using the total cost method.

	1. Total cost per unit 2. Markup percentage 3. Selling price

Answer 1

1.

Variable Costs per Unit				Fixed Costs
Direct materials	$	113		Overhead	$	483,000
Direct labor		38		Selling		103,000
Overhead		33		Administrative		338,000
Selling		8
Total	$	192		Total	$	924,000

Variable Costs per Unit = $192

Total fixed costs = $924,000

Fixed cost per unit = 924,000/16,500

= $56

Total cost per unit = Variable Costs per Unit + Fixed cost per unit

= 192 + 56

= $248

2.

The company targets a profit of $511,500

Profit per unit = Target profit/Number of units

= 511,500/16,500

= $31

Markup percentage = Profit per unit/Total cost per unit

= 31/248

= 12.5%

3.

Selling price per unit = Total cost per unit + Profit per unit

= 248 + 31

= $279

Kindly comment if you need further assistance. Thanks