CHAPTER 17
Problem 17-2: Burtis Company
Calculation of normal selling price for 20x3 assuming continued use of full cost:
20x2 Increase 20x3 Direct Direct material.... material...................... ..................................... ..................................... .................................... .................................... .................................... $ 4.00..................................... $ .48..................................... * $ 4..................................... 48 .................. Direct Direct labor.............. labor................................ .................................... ..................................... ..................................... .................................... .................................... 7.00 ..................................... .84* ..................................... 7.84 ............................... ............. Indirect Indirect manufacturi manufacturing........ ng.......................... .................................... .................................... ..................................... ..................................... 4.8.................................... 0 .................................... .60 ........................................ 5.40 ...................... Selling Selling and administra administrative tive.................. .................................... .................................... ..................................... ..................................... 3.................................... .50 .................................... .00 ..................................... 3.50 ......................... ...... Total full cost 19.30 1.92 21.22 ................................... ..................................................... .................................... ........................................ ...................... .... ................................... ..................................................... .................................... .................................... ..................................... ..................................... .................................... .................................... .................................... ........................ ...... Profit Profit (10%)............. (10%)............................... .................................... ..................................... ..................................... .................................... .................................... 1.93 ..................................... .19 ................................................... 2.12................................ Selling Selling price................. price.................................... ..................................... .................................... .................................... .................................... $..................................... 21.23 ..................................... $2.11 .................................... $23.34 ............................ .......... *12 percent increase for direct material (.12 x $4.00 = $.48) and for direct labor (.12 x $7.00 = $.84) $6,000 increase with volume of 10,000 units = increase of $.60 per unit.
Problem 17-3: Micha Smith
a.
Fee per hour =
Total costs $5,700
+
Desired profit $3,300
150 150 hours
= $60.00 per hour b.
Revenue, Revenue, 100 hours @ $60................... $60..................................... ..................................... ..................................... .................................... .................................... $6,000 .................................... .................. Costs.......... Costs............................ .................................... ..................................... ..................................... .................................... .................................... ..................................... 5,700 ..................................... ........................ ...... Profit........... Profit.............................. ..................................... .................................... .................................... .................................... ..................................... ..................................... $ 300 .................................... ...................... ....
Problem 17-4: Valade Company
a. Calcul Calculati ation on of sellin selling g prices prices:: Total Product Product Company ___J___ ___K___ Direct Direct manufactur manufacturing ing cost................. cost................................... .................................... .................................... ..................................... $ 70..................................... 0,000 $4.................................... 00,000 .................................... $300,000 .......................... ........ Indirect Indirect manufacturi manufacturing ng cost.................. cost.................................... .................................... .................................... ..................................... 280,..................................... 000 16.................................... 0,000 .................................... 120,000 ...................... .... Selling and administrative cost................................................................................................................................................ 140,000 80,000 60,000 Full cost................ cost.................................. .................................... ..................................... ..................................... .................................... .................................... 1,120,000..................................... 640,0..................................... 00 480,................................... 000 ................. Desired Desired profit*........ profit*........................... ..................................... .................................... .................................... ..................................... ..................................... 280,000 .................................... 160,000.................................... 120,0................................. 00 ............... Sales revenue......... revenue........................... .................................... .................................... .................................... ..................................... ..................................... $1,400,000 .................................... $800,00.................................... 0 $600,................................... 000 ................. Divide Divide by units................... units..................................... .................................... .................................... ..................................... ..................................... .................................... ÷ 1.................................... 0,000 ÷.................................... 10,000 ...................... .... Selling Selling price per unit................... unit..................................... .................................... .................................... ..................................... ..................................... .................................... $80.00.................................... $60.0 ................................ 0 .............. *The desired profit of 280,000 for the company as a whole is 25 percent of the company’s full cost. Therefore, a 25 percent profit margin percentage is applied to the full cost of each product to obtain the selling price.
The profit percentage is equal to: (Desired profit + Selling and administrative cost) ÷ Full production cost. For Product A it equals ($160,000 + 80,000)/560,000 = 42.86% which is the same as for product K = ($120,000 + $60,000)/
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$420,000 = 42.86%
b .
Total Product Product Company ___A ___ ___B___ Sales revenue*................................................................................................................................................................ $1,248,000 $384,000 $864,000 Full cost+........................................................................................................................................................................ 1,040,000 320,000 720,000 Profit............................................................................................................................................................................... $ 208,000 $ 64,000 $144,000
*Sales Revenue A: 5,000 units @ $76.80 = $384,000 B: 15,000 units @ $57.60 = $864,000
+Full Cost
$640,000 = $320,000 10,000 units $480,000 = $720,000 B: (15,000 units) 10,000 units A: (5,000)
c. Profit margin pricing results in product prices containing identical profit percentages. However, the product with the higher price will yield the higher total dollar profit. Therefore, a shift in product mix toward lower price items will reduce total dollar profits for the company as a whole.
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