There are many ways to decide the price of the product. One of them is – Total cost method Under total cost method, the selling price of the product is decided by using the total direct material, total direct labor, total variable overhead , fixed overhead costs, fixed selling and administrative costs and the units expected to be sold. First, the total cost per unit is calculated Total cost per unit = (Total direct material + total direct labor + total variable overheads) + F i x e d o v e r h e a d c o s t s + F i x e d s e l l i n g a n d a d m i n i s t r a t i v e c o s t s T o t a l e x p e c t e d u n i t s t o s e l l This is how total cost per unit is calculated. Then the mark-up percentage is added to total costs per unit to know the selling price per unit. Now, the selling price is decided as under – S e l l i n g p r i c e p e r u n i t = T o t a l cos t p e r u n i t + ( T o t a l cost per unit X M a r k u p p e r c e n t a g e ) S e l l i n g p r i c e p e r u n i t = T o t a l cost per unit + T o t a l M a r k u p This is how, we calculate the selling price per unit in case of total costs method. To compute: Selling price using the total costs method.

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Chapter 25, Problem 30QS

To determine

Concept Introduction:

There are many ways to decide the price of the product. One of them is –

Total cost method

Under total cost method, the selling price of the product is decided by using the total direct material, total direct labor, total variable overhead, fixed overhead costs, fixed selling and administrative costs and the units expected to be sold.

First, the total cost per unit is calculated

$Total cost per unit = \frac{\begin{array}{l} (Total direct material + total direct labor + total variable overheads) \\ + F i x e d o v e r h e a d c o s t s + F i x e d s e l l i n g a n d a d m i n i s t r a t i v e c o s t s \end{array}}{T o t a l e x p e c t e d u n i t s t o s e l l}$

This is how total cost per unit is calculated. Then the mark-up percentage is added to total costs per unit to know the selling price per unit.

Now, the selling price is decided as under –

$\begin{array}{l} S e l l i n g p r i c e p e r u n i t = T o t a l \cos t p e r u n i t + (T o t a l cost per unit X M a r k u p p e r c e n t a g e) \\ S e l l i n g p r i c e p e r u n i t = T o t a l cost per unit + T o t a l M a r k u p \end{array}$

This is how, we calculate the selling price per unit in case of total costs method.

To compute:

Selling price using the total costs method.

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Reciprocal Method Eilers Company has two producing departments and two support departments. The following budgeted data pertain to these four departments: Support Departments Producing Departments General Factory Receiving Assembly Finishing Direct overhead $400,000 $150,000 $45,000 $71,000 Square footage 2,700 5,400 5,400 Number of receiving orders 300 1,680 1,020 Direct labor hours 25,000 40,000 Required: 1. Allocate the overhead costs of the support departments to the producing departments using the reciprocal method. (Round allocation ratios to two decimal places. Round allocated costs to the nearest dollar. If an amount is zero, enter "0".) Allocation ratios: Square footage General Factory Receiving Assembly Finishing 0 0 Number of receiving orders 0.10 0 0.56 0.34 Allocations: Direct overhead cost General Factory Receiving Total General Factory Receiving Assembly Finishing $ $ $ $ 400,000 150,000 45,000 71,000 $ $ $ $ 2. Using direct labor hours, compute departmental overhead…