1.
Determine the fixed selling and administrative cost allocated to each unit of LM Corporation’s mover.
1.
Explanation of Solution
Cost-plus-markup approach: The pricing approach used by the companies to set the target selling price based on the cost plus desired profit, is referred to as cost-plus-markup approach.
Step 1: Calculate total unit cost.
Step 2: Calculate the allocated fixed selling and administrative cost.
Particulars | Cost per unit |
Total unit cost | $400 |
Less: Variable | $250 |
Less: Applied fixed manufacturing cost | $50 |
Less: Variable selling and administrative cost | $60 |
Allocated fixed and administrative cost | $40 |
Table (1)
Therefore, the fixed selling and administrative cost allocated to each unit of LM Corporation’s mover is $40.
2.
Develop a cost-plus pricing formula which should result in a target price of $450 per mover for:
- (a) Variable manufacturing cost,
- (b) Absorption manufacturing cost, and
- (c) Total variable cost.
2.
Explanation of Solution
(a) Cost-plus pricing formula for variable manufacturing cost.
Step 1: Calculate markup percentage.
Step 2: Develop a cost-plus pricing formula for variable manufacturing cost.
(b) Cost-plus pricing formula for absorption manufacturing cost.
Step 1: Calculate absorption manufacturing cost.
Particulars | Cost per unit |
Variable manufacturing cost | $250 |
Applied fixed manufacturing cost | $50 |
Absorption manufacturing cost | $300 |
Table (2)
Step 2: Calculate markup percentage.
Step 3: Develop a cost-plus pricing formula for absorption manufacturing cost.
(c) Cost-plus pricing formula for total variable cost.
Step 1: Calculate total variable cost.
Particulars | Cost per unit |
Variable manufacturing cost | $250 |
Variable selling and administrative cost | $60 |
$310 |
Table (3)
Step 2: Calculate markup percentage.
Step 3: Develop a cost-plus pricing formula for total variable cost.
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