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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