Question

agpie Corporation uses the total cost method of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% return on invested assets of $700,000. Fixed factory overhead cost $38,700 Fixed selling and administrative costs 7,500 Variable direct materials cost per unit 4.60 Variable direct labor cost per unit 1.88 Variable factory overhead cost per unit 1.13 Variable selling and administrative cost per unit 4.50 The cost per unit for the production and sale of Magpie's product is

Answer 1

Answer:

$12.88

Explanation:

given information

units sold 60,000

desired profit = 25% x $700,000 = $175,000

fixed factory overhead = $38,700

fixed S&A = $7,500

direct materials per unit = $4.60

direct labor per unit = $1.88

variable overhead per unit = $1.13

variable S&A per unit = $4.50

the cost per unit:

• direct materials per unit = $4.60
• direct labor per unit = $1.88
• variable overhead per unit = $1.13
• variable S&A per unit = $4.50
• fixed factory overhead = $38,700 / 60,000 = $0.645
• fixed S&A = $7,500 / 60,000 = $0.125
• total cost per unit = $12.88

the desired profit = $2.92, so the selling price to achieve the desired profit should = $15.80