Sirrus Phone Company uses the total cost concept of applying the cost-plus appro
ID: 2355605 • Letter: S
Question
Sirrus Phone Company uses the total cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 3,500 units of mobile phones are as follows:variable costs fixed costs
Direct materials $130.00 per unit Factory o/h $175,000
Direct labor 50.00 Selling/admin exp $ 70,000
Factory overhead 35.00
Selling/admin exp 25.00
Total $240.00
Sirrus desires a profit equal to a 30% rate of return on invested assets of $350,000
Assuming Sirrus Phone Company uses the product cost concept of applying the cost-plus approach to product pricing,
a. Determine the total manufacturing costs and the cost amount per unit for the production and sale of 3,500 units of mobile phones.
b.Determine the markup percentage(rounded to two decimal places)for mobile phones
c.determine the selling price of mobile phones. Round to the nearest dollar.
Explanation / Answer
a. Determine the totalmanufacturing costs and the cost amount per unit for the productionand sale of 3,500 units of mobile phones.
Total Manufacturing Costs:
Variable ($215 x 3,500units) $752,500
Fixed FactoryOverhead $175,000
Total $927,500
Cost amount per unit: $927,500 / 3,500 units= $265.00
b. Determine the markuppercentage (rounded to two decimal places) for mobile phones.
Markup Percentage =
Desired Profit + Total Sellingand Administrative Expenses / Total Manufacturing Costs
Markup Percentage =
$105,000* + 70,000 + ($25 x3,500 units) / $927,500
Markup Percentage =
$105,000 + 70,000 + 87,500 /$927,500
Markup Percentage=
$262,500 / $927,500 =28.30%
*($350,000 x 30%)
c. Determine the sellingprice of mobile phones. Round to the nearestdollar.
Cost amount perunit $265.00
Markup ($265 x28.30%) $ 75.00
SellingPrice $340.00