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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 |
$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%
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
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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