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n/ilm/takeAssignment/take o?invo takeAssig Print Rem Variable Cost Method of Product Pricing Smart Stream Inc. uses the variable cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 ce phones are as follows: Variable costs per unit: Fixed costs: Direct materials Direct labor Factory overhead Selling and administrative expenses 25 $150 Factory overhead $350,000 25 Selling and admin. exp. 140,000 Total variable cost per unit 240 Smart Stream desires a profit equal to a 30% return on invested assets of S 1.200.000. a. Determine the variable costs and the variable cost amount per unit for the production and sale of 10,000 cellular phones Total variable cost Variable cost amount per unit b. Determine the variable cost markup percentage for celular phones. Round to two decimal places c. Determine the selling price of celflular phones. If required, round to the nearest dollar per cellular phone ?? DOLL F11 8 1 6

Solution

Answer to Part a.:

Total Variable Cost = Variable Cost per Unit * Unit Sold
Total Variable Cost = $240 * 10,000
Total Variable Cost = $2,400,000

Variable Cost amount per unit = $240

Answer to Part b.:

Markup Percentage = Desired Profit / Total Variable * 100
Desired Profit = $1,200,000 * 30%
Desired Profit = $360,000

Markup Percentage = 360,000 / 2,400,000 * 100
Markup Percentage = 15.00%

Answer to Part c.:

Cost per Unit = Total Cost / Units Sold
Total Cost = Total Variable Cost + Total Fixed Cost
Total Cost = ($240 * 10,000) + ($350,000 + $140,000)
Total Cost = $2,400,000 + $490,000
Total Cost = $2,890,000

Cost per Unit = 2,890,000 / 10,000
Cost per Unit = $289

Selling Price per unit = Cost per Unit + (Mark up on Variable Cost per Unit)
Selling Price per unit = $289 + ($240 * 15%)
Selling Price per unit = $289 + $36
Selling Price per unit = $325