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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Variable cost concept of product pricing

Based on the data presented in Exercise 25-18, assume that Smart Stream Inc. uses the variable cost concept of applying the cost-plus approach to product pricing.

a. Determine the variable costs and the variable cost amount per unit for the production and sale of 10,000 cellular phones.

b. Determine the variable 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 variable cost and variable cost per unit for the production and sale of 10,000 cellular phones.

Explanation

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

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

Total variable Cost = Variable Cost × Number of units= $240 × 10,000 units= $2,400,000

Hence, the total variable cost for the production of 10,000 cellular phones is $2,400,000

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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