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Dear Sir,
Hi,a very good day to you.i don’t know how to do this question?Can you teach me how to do?
A company’s prices it’s product by using a mark up of 80% on variable production cost?Fixed production overhead is absorbed at 50% of variable production cost and the product has a price of $15 per unit.
What is the product’s full production cost per unit?
Answer is $12.50
Kindly reply,
Thank you.
Hi Mun
If the price is at a markup of 80% on variable cost, then it means that for every $100 of variable cost, they will add on $80 and the price will be $180.
So if the price is $15, it means that the variable cost must be 100/180 x 15 = $8.3333
So fixed costs must be 50% x 8.3333 = $4.1667, and therefore full cost = $12.50
A company prices its product by using a mark-up of 80% on variable production cost. Fixed production overhead is absorbed at 50% of variable production cost and the product has a price of $15 per unit.
What is the product’s full production cost per unit?
2 points
A.$4.17
B.$4.50
C.$6.00
D.$12.50In future please do not simply type out a full question and expect to be provided with a full answer. You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about and then I will explain.
Given that the selling price is $15 and this is the variable cost + 80%, then the variable cost must be 15/1.8 =8.333. So the fixed cost is 8.333 x 50% =4.167
Therefore the full production cost is 8.333 + 4.167 =12.5 per unit.
To further clarify. The given question states “A company’s prices it’s product by using a mark up of 80% on variable production cost” , that means the company only uses variable cost for calculating their sales price. (sales = variable cost + profit )
therefore
say variable cost = x
that means profit = 80%(x) = .8x
15=x+1.8x
15/1.8=x=8.33Now total cost of production = variable cost + fixed cost
x + 50%(x) = 8.33+4.17 = 12.50
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