Mallard Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000. The cost per unit for the production of the company's product is:

Question

Mallard Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000.  The cost per unit for the production of the company's product is:

Quizplus · Accepted Answer

First, we need to calculate the desired profit. 
Invested assets = $800,000 
Rate of return = 12% 
Therefore, desired profit = $800,000 x 12% = $96,000

Total cost = Variable cost + Fixed cost 
Total cost = ($405,000 + $180,000) + $200,000 = $785,000

Cost per unit = Total cost / Number of units 
Cost per unit = $785,000 / 45,000 = $17.22

Since Mallard Corporation uses the product cost concept, we need to add the desired profit to the cost per unit to determine the selling price. 
Selling price = Cost per unit + Profit per unit 
Selling price = $17.22 + ($96,000 / 45,000) = $19.16

Therefore, the cost per unit for the production of the company's product is $17.22.

Mallard Corporation Uses the Product Cost Concept of Product Pricing