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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Total cost concept of product costing
Willis Products Inc. uses the total cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 200,000 units of medical tablets are as follows:

Willis Products desires a profit equal to a 20% rate of return on invested assets of $12,000,000.
a.Determine the amount of desired profit from the production and sale of 200.000 units.
b.Determine the total costs and the costamount per unitfor the production and sale of 200,000 units.
c.Determine the total cost markup percentage per unit.
d.Determine the selling price per unit.

To determine

Concept Introduction:

Cost Volume Profit (CVP) Analysis:

The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.

Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones.

The formula for contribution margin is as follows:

Contribution margin = Sales - Variable cost.

Similarly contribution margin ratio = Contribution/sales

To Calculate:

The Cost amount per unit, the markup %, and the selling price per unit using the Variable cost

Explanation

The Cost amount per unit, the markup %, and the selling price per unit are calculated as follows:

    Variable Cost per unit (A)$ 50.00
    Desired Profit per unit (B) (240000/20000) $ 12...

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