Total Cost Concept of Product Pricing Smart Stream Inc. uses the total cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 8,500 units of cellular phones are as follows: Variable costs:   Fixed costs:       Direct materials $ 73 per unit     Factory overhead $314,500     Direct labor 34       Selling and admin. exp. 110,500     Factory overhead 22           Selling and admin. exp. 17                Total $146 per unit     Smart Stream wants a profit equal to a 15% rate of return on invested assets of $932,960. a.  Determine the total costs and the total cost amount per unit for the production and sale of 8,500 units of cellular phones. Round the cost per unit to two decimal places. Total costs   Cost amount per unit                                 b.  Determine the total cost markup percentage (rounded to two decimal places) for cellular phones.               % c.  Determine the selling price of cellular phones. Round to the nearest cent. $         per phone

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Total Cost Concept of Product Pricing

Smart Stream Inc. uses the total cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 8,500 units of cellular phones are as follows:

Variable costs:   Fixed costs:  
    Direct materials $ 73 per unit     Factory overhead $314,500
    Direct labor 34       Selling and admin. exp. 110,500
    Factory overhead 22      
    Selling and admin. exp. 17      
         Total $146 per unit    

Smart Stream wants a profit equal to a 15% rate of return on invested assets of $932,960.

a.  Determine the total costs and the total cost amount per unit for the production and sale of 8,500 units of cellular phones. Round the cost per unit to two decimal places.

Total costs  
Cost amount per unit                                

b.  Determine the total cost markup percentage (rounded to two decimal places) for cellular phones.
              %

c.  Determine the selling price of cellular phones. Round to the nearest cent.
$         per phone

Expert Solution
Step 1 Introduction:

Selling and administrative expenses are referred to as operating expenses. These are not included in the computation of total manufacturing cost of the product as these are not directly linked with the production process. These expenses include sales commissions, postage, utilities, travelling and advertisement.

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