McClelland Corporation uses the total cost concept of product pricing. Below is
ID: 2428153 • Letter: M
Question
McClelland Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 40,000 units of its sole product. McClelland desires a profit equal to a 14% rate of return on invested assets of $400,000.Fixed factory overhead cost $25,000.00
Fixed selling and administrative costs 5,000.00
Variable direct materials cost per unit 3.00
Variable direct labor cost per unit 1.25
Variable factory overhead cost per unit 75 cents
Variable selling and administrative cost per unit 3.00
The dollar amount of desired profit from the production and sale of the company's product is:
a. $56,000
b. $44,800
c. $49,000
d. $64,000
Explanation / Answer
Sales = 40,000 units Rate of Return on Invested Assets = 14% Invested Assets = $400,000 Rate of Return on Invested Assets = [Net Income / Invested Assets] 14% = [Net Income / $400,000] [Net Income / $400,000] = 0.14 Net Income = [0.14 * $400,000] Net Income = $56,000 The dollar amount of desired profit from the production and sale of the company’s product is (a) $56,000 Please Rate