Product Cost Concept of Product Costing Smart Stream Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,490 cellular phones are as follows: Variable costs: Fixed costs: Direct materials $90 Factory overhead $199,900 Direct labor 32 Selling and administrative expenses 70,200 Factory overhead 24 Selling and administrative expenses 19 Total $165 Smart Stream wants a profit equal to a 13% rate of return on invested assets of $599,500. a. Determine the amount of desired profit from the production and sale of 5,490 cellular phones. b. Determine the product cost and the cost amount per unit for the production of 5,490 cellular phones. If required, round your answer to nearest dollar. c. Determine the product cost markup percentage for cellular phones. Rounded to two decimal places. d. Determine the selling price of cellular phones. Round to the nearest dollar. Cost per unit Markup Selling price per unit
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.
Product Cost Concept of Product Costing
Smart Stream Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,490 cellular phones are as follows:
| Variable costs: | Fixed costs: | ||||||
| Direct materials | $90 | Factory |
$199,900 | ||||
| Direct labor | 32 | Selling and administrative expenses | 70,200 | ||||
| Factory overhead | 24 | ||||||
| Selling and administrative expenses | 19 | ||||||
| Total | $165 |
Smart Stream wants a profit equal to a 13% rate of
a. Determine the amount of desired profit from the production and sale of 5,490 cellular phones.
b. Determine the product cost and the cost amount per unit for the production of 5,490 cellular phones. If required, round your answer to nearest dollar.
c. Determine the product cost markup percentage for cellular phones. Rounded to two decimal places.
d. Determine the selling price of cellular phones. Round to the nearest dollar.
| Cost | per unit | |
| Markup | ||
| Selling price | per unit |
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