Phone, Inc., uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 5,490 units of cell phones are as follows: Variable costs: Fixed costs: Direct materials $90 per unit Factory overhead $201,800 Direct labor 39 Selling and admin. exp. 69,700 Factory overhead 22 Selling and admin. exp. 19 Total variable cost per unit $170 per unit Phone desires a profit equal to a 14% rate of return on invested assets of $598,700. Determine the amount of desired profit from the production and sale of 5,490 units of cell phones. $____ Determine the product cost per unit for the production of 5,490 of cell phones. If required, round your answer to nearest dollar. $______ per unit Determine the product cost markup percentage (rounded to two decimal places) for cell phones. _______ %
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Phone, Inc., uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 5,490 units of cell phones are as follows:
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Variable costs: |
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Fixed costs: |
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Direct materials |
$90 |
per unit |
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Factory |
$201,800 |
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Direct labor |
39 |
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Selling and admin. exp. |
69,700 |
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Factory overhead |
22 |
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Selling and admin. exp. |
19 |
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Total variable cost per unit |
$170 |
per unit |
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Phone desires a profit equal to a 14% rate of
- Determine the amount of desired profit from the production and sale of 5,490 units of cell phones.
$____
- Determine the product cost per unit for the production of 5,490 of cell phones. If required, round your answer to nearest dollar.
$______ per unit
- Determine the product cost markup percentage (rounded to two decimal places) for cell phones.
_______ %
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