Product Cost Method of Product Costing Voice Com Inc uses th

Product Cost Method of Product Costing

Voice Com, Inc., uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 4,700 units of cell phones are as follows:

Voice Com desires a profit equal to a 14% rate of return on invested assets of $599,500.

a. Determine the amount of desired profit from the production and sale of 4,700 units of cell phones.
$

b. Determine the product cost per unit for the production of 4,700 of cell phones. If required, round your answer to nearest dollar.
$ per unit

c. Determine the product cost markup percentage (rounded to two decimal places) for cell phones.
%

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

Variable costs:				Fixed costs:
	Direct materials	$74	per unit			Factory overhead	$200,400
	Direct labor	31				Selling and admin. exp.	69,000
	Factory overhead	25
	Selling and admin. exp.	21
		Total variable cost per unit	$151	per unit

Solution

a.Determine the amount of desired profit from the production and sale of 4,700 units of cell phones.

Answer: Desired Profit = Investment x Expected rate of return

                                      =$599,500 x 14%=$83,930

b.Determine the product cost per unit for the production of 4,700 of cell phones. If required, round your answer to nearest dollar.
$ per unit

Answer:

Particulars

Amount

Direct materials

$       74.0

Direct labor

$       31.0

Factory overhead

$       25.0

Selling and admin. exp.

$       21.0

Factory overhead

$200,400/4,700

$       42.6

Selling and admin. exp.

$69,000/4,700

$    14.68

Product Cost

$    208.3

c.Determine the product cost markup percentage (rounded to two decimal places) for cell phones.

Profit per Unit =$83,930/4,700 units=$17.86

Mark up percentage =$17.86/$208.33 x 100=8.57%

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

Cost

$              208.33

Per Unit

Markup

$                17.86

Per Unit

Selling price

$              226.19

Per Unit

Particulars		Amount
Direct materials		$       74.0
Direct labor		$       31.0
Factory overhead		$       25.0
Selling and admin. exp.		$       21.0
Factory overhead	$200,400/4,700	$       42.6
Selling and admin. exp.	$69,000/4,700	$    14.68
	Product Cost	$    208.3