   Chapter 25, Problem 25.26EX

Chapter
Section
Textbook Problem

Total cost concept of product pricingBased on the data presented in Exercise 25-18, assume that Smart Stream Inc. uses the total cost concept of applying the cost-plus approach to product pricing.a. Determine the total costs and the total cost amount per unit for the production and sale of 10,000 cellular phones.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 dollar.

a)

To determine

Product pricing: Product pricing is the method used for fixing the price for the products sold or the services offered to the consumers.

Target cost concept:   Target cost is the estimated cost of the product which is calculated on the basis of sustainable price in the marketplace.

Target Cost = Expected Selling Price – Desired Profit

To Determine: The total cost and total cost per unit for the production and sale of 10,000 cellular phones.

Explanation

Total Cost: Total cost refers to the costs involved in the production of the product.

Calculate the total cost for the production of 10,000 cellular phones.

<
 Total Cost:       Variable Cost ($240 × 10,000 units)$2,400,000 Fixed Cost ($350,000 +$140,000) \$490,000

b)

To determine
The total cost markup percentage (round up to two decimal places) for cellular phones.

c)

To determine
The selling price per unit of cellular phone.

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