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The document outlines the calculation of selling price per unit, variable cost amount per unit, and markup percentage using the variable cost method. It details the total variable cost, fixed costs, and desired return, resulting in a selling price of $350 per unit and a markup percentage of 19.15%, leading to a selling price of $280 under the variable cost method. Additionally, it emphasizes that pricing should consider market conditions and other factors beyond the cost-plus approach.

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3 views1 page

Answer

The document outlines the calculation of selling price per unit, variable cost amount per unit, and markup percentage using the variable cost method. It details the total variable cost, fixed costs, and desired return, resulting in a selling price of $350 per unit and a markup percentage of 19.15%, leading to a selling price of $280 under the variable cost method. Additionally, it emphasizes that pricing should consider market conditions and other factors beyond the cost-plus approach.

Uploaded by

peter
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Answer

Let's calculate the selling price per unit, variable cost amount per unit,
markup percentage, and selling price per unit using the variable cost
method.

Selling Price Per Unit


The selling price per unit can be calculated using the cost-plus approach. The
formula for this is:
Selling Price = Total Cost + (Total Cost * Desired Return)
The total cost per unit is the sum of variable costs and fixed costs per unit.
The fixed costs per unit can be calculated by dividing the total fixed costs by
the number of units.
Let's calculate:
1. Total Variable Cost per Unit = $235
2. Total Fixed Costs = $1,000,000 (Factory Overhead) + $400,000
(Selling and Admin Expenses) = $1,400,000
3. Fixed Cost per Unit = Total Fixed Costs / Number of Units = $1,400,000
/ 20,000 = $70
4. Total Cost per Unit = Total Variable Cost per Unit + Fixed Cost per Unit
= $235 + $70 = $305
5. Desired Return on Invested Assets = 15% of $6,000,000 = $900,000
6. Desired Return per Unit = Desired Return on Invested Assets / Number
of Units = $900,000 / 20,000 = $45
7. Selling Price per Unit = Total Cost per Unit + Desired Return per Unit =
$305 + $45 = $350
Variable Cost Method
Under the variable cost method, the markup percentage and selling price per
unit can be calculated as follows:
1. Variable Cost Amount per Unit = $235
2. Markup Percentage = (Desired Return per Unit / Variable Cost Amount
per Unit) * 100 = ($45 / $235) * 100 = 19.15%
3. Selling Price per Unit = Variable Cost Amount per Unit + (Variable Cost
Amount per Unit * Markup Percentage) = $235 + ($235 * 19.15%) =
$280
Other Considerations
The cost-plus approach price should indeed be viewed as a general guideline
for establishing long-run normal prices. However, other considerations such
as market conditions, competition, customer demand, and product lifecycle
could lead management to establish a different short-run price.

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