Variable Cost Concept of Product Pricing Willis Products Inc

Variable Cost Concept of Product Pricing

Willis Products Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 7,000 units of medical tablets are as follows:

Willis Products desires a profit equal to a 25% rate of return on invested assets of $600,012.

a. Determine the variable costs and the cost amount per unit for the production and sale of 7,000 units of medical tablets.

b. Determine the variable cost markup percentage per unit. Round your percentage answer to one decimal place.
%

c. Determine the selling price per unit. Use the rounded variable cost markup percentage in your calculations, and round the amount of the markup to the nearest whole dollar.
$ per unit

For part b I keep doing the calculations and keep getting 10.2% which the system is telling me is incorrect.

For part C I keep doing the calculations and keep getting 231 which the system is also telling me is incorrect.

Solution

a. Total variable costs = $210 x 7000 = $1470000

Variable cost per unit = $210 per unit

b. Variable cost markup percentage per unit: 34.5%

Markup percentage = (Desired profit + Total fixed costs)/Total variable costs

Desired profit = $600012 x 25% = $150003

Total fixed costs = $266000 + $91000 = $357000

Total variable costs = $1470000

Markup percentage = ($150003 + $357000)/$1470000 = $507003/$1470000 = 34.49% = 34.5%

c. Selling price per unit: $282

Variable cost per unit = $210

Markup per unit = $210 x 34.5% = $72.45 = $72

Selling price per unit = $210 + $72 = $282