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Rios Co
Rios Co. makes drones and uses the variable cost approach in setting product prices. Its costs for producing 40,000 units follow. The company targets a profit of $320,000 on this product. Variable costs per Unit Direct materials $ 90 Direct labor 60 Overhead 45 Selling 35 Fixed Costs (in total) Overhead $690,000 Selling 325,000 Administrative 305,000 1. Compute the variable cost per unit. 2. Compute the markup percentage on variable cost. (Round percentage answer to 2 decimal places.) 3. Compute the product's selling price using the variable cost method (Round your intermediate percentage calculations and final answer to 2 decimal places.) 1 2 Variable cost per unit Markup percentage Selling price % 3
Expert Solution
Part (1) Variable cost per unit = 90 + 60 + 45 + 35 = $ 230
Part (2)
Fixed cost per unit = (690,000 + 325,000 + 305,000) / 40,000 = $ 33
Profit per unit required = 320,000 / 40,000 = $ 8
Selling price - Variable cost per unit - Fixed cost per unit = Profit per unit
selling price = 230 + 33 + 8 = 271
mark up on % on variable cost = Sale price/ variable cost per unit - 1 = (271 / 230 ) - 1 = 17.83%
Part (3)
Sale Price = variable cost x (1 + mark up %) = 230 x (1 + 17.83%) = $ 271
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