Mademoiselle Company produces women's handbags. The cost of producing 1,210 handbags is as...

Question:

Mademoiselle Company produces women's handbags. The cost of producing 1,210 handbags is as follows:

Direct materials $15,900
Direct labor 8,100
Factory overhead 5,600
Total manufacturing cost $29,600

The selling and administrative expenses are $28,200. The management desires a profit equal to 18% of invested assets of $498,000.

a. Determine the amount of desired profit from the production and sale of 1,210 handbags.

b. Determine the product cost per unit for the production of 1,210 handbags.

c. Determine the product cost markup percentage for handbags.

d. Determine the selling price of handbags.

Desired Profit:

The desired profit is the profit that a business unit wants to earn from its business operation. To earn the desired profit the management prepares plans and implement to earn the desired profit.

Answer and Explanation:

a)The amount of desired profit is 18% of the invested assets of $498,000. 18% x $498,000 = $89,640

b)Product Cost per Unit equals total manufacturing costs divided by the number of units = $29,600 / 1,210 = $24.46 per unit.

c)Product Cost Markup Percentage = Gross Profit / Manufacturing Costs = $89,640 / $29,600 = 303% markup

d) Total sales needs to be:profit + Manufacturing Costs + Selling Costs = $89,640 + $29,600 + $28,200 = $147,440.

The selling price per handbag = Total sales required divided by the number of handbags = $147,440/1,210 = $121.85 per handbag


Learn more about this topic:

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How to Calculate Markup: Definition & Formula

from Principles of Marketing: Help and Review

Chapter 12 / Lesson 22
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