Response to the following :
Setting Selling Prices: Functional Cost Approach
Refer to problem. Assume that the company prices its products using a 30% markup on total manufacturing cost to cover selling and administrative expenses and to provide a reasonable return on investment. Using the following data and the functional cost approach to pricing products, estimate the normal selling price. Note: The markup will end up being 30% of the selling price.
Problem:
Setting Selling Prices: Contribution Approach
The company prices its products using a 40% markup on total variable cost to cover fixed costs and to provide a reasonable return on investment. Using the following data and the contribution approach to pricing products, estimate the normal selling price. Note: The markup will end up being 40% of the selling price.
Cost per Unit
Direct materials $10
Direct labor 17
Variable manufacturing overhead 13
Variable selling and administrative expenses 8
Fixed manufacturing overhead totals $80,000 per year. Fixed selling and administrative expenses are $55,000 per year. The average number of units sold per year is 5,000.