Use this information for Magpie Corporation to answer the questions that follow.

Magpie Corporation uses the total cost concept of product pricing. Below is the cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000.

$$\begin{array} { l r }
\text { Fixed factory overhead cost } & \$ 38,700 \
\text { Fixed selling and administrative costs } & 7,500 \
\text { Variable direct materials cost per unit } & 4.60 \
\text { Variable direct labor cost per unit } & 1.88 \
\text { Variable factory overhead cost per unit } & 1.13 \
\text { Variable selling and administrative cost per unit } & 4.50
\end{array}$$
-The unit selling price for the company's product is
A) $15.00
B) $13.82
C) $15.79
D) $14.76

Question

Use this information for Magpie Corporation to answer the questions that follow.
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Magpie Corporation uses the total cost concept of product pricing. Below is the cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000.
​
​
 $$\begin{array} { l r } 
\text { Fixed factory overhead cost } & \$ 38,700 \
\text { Fixed selling and administrative costs } & 7,500 \
\text { Variable direct materials cost per unit } & 4.60 \
\text { Variable direct labor cost per unit } & 1.88 \
\text { Variable factory overhead cost per unit } & 1.13 \
\text { Variable selling and administrative cost per unit } & 4.50
\end{array}$$
-The unit selling price for the company's product is
A) $15.00
B) $13.82
C) $15.79
D) $14.76

Quizplus · Accepted Answer

To find the unit selling price, first calculate the total cost per unit, then add the desired profit per unit. Total variable cost per unit is $4.60 (materials) + $1.88 (labor) + $1.13 (factory overhead) + $4.50 (selling and administrative) = $12.11. Total fixed cost is $38,700 (factory overhead) + $7,500 (selling and administrative) = $46,200. To find the fixed cost per unit, divide the total fixed cost by the number of units: $46,200 / 60,000 units = $0.77 per unit. The total cost per unit is $12.11 (variable) + $0.77 (fixed) = $12.88. The desired profit is 25% of $700,000 = $175,000. Profit per unit is $175,000 / 60,000 units = $2.92. Therefore, the unit selling price is $12.88 (total cost per unit) + $2.92 (profit per unit) = $15.80, which rounds to $15.79.

Use This Information for Magpie Corporation to Answer the Questions