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Pinkin Incorporated needs to determine a price for a new phone model. Pinkin desires a 25% markup on the total cost of the phone. Pinkin expects to sell 30,000 phones. Additional information is as follows: Variable Costs per Unit   Fixed Costs (total)  Direct materials $ 15 Overhead $ 85,000Direct labor 40 General and administrative 65,000Overhead 20    General and administrative 50    Using the total cost method what price should Pinkin charge?Multiple Choice$161.25$162.50$156.10$142.50$130.10

Question

Pinkin Incorporated needs to determine a price for a new phone model. Pinkin desires a 25% markup on the total cost of the phone. Pinkin expects to sell 30,000 phones. Additional information is as follows: Variable Costs per Unit   Fixed Costs (total)  Direct materials 15Overhead 15 Overhead 85,000Direct labor 40 General and administrative 65,000Overhead 20    General and administrative 50    Using the total cost method what price should Pinkin charge?Multiple Choice161.25161.25162.50156.10156.10142.50$130.10

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Solution

To determine the price Pinkin should charge, we first need to calculate the total cost per unit and then add the desired markup.

Step 1: Calculate the total variable cost per unit This is the sum of the direct materials, direct labor, overhead, and general and administrative costs per unit.

15(Directmaterials)+15 (Direct materials) + 40 (Direct labor) + 20(Overhead)+20 (Overhead) + 50 (General and administrative) = $125 per unit

Step 2: Calculate the total fixed costs This is the sum of the overhead and general and administrative costs.

85,000(Overhead)+85,000 (Overhead) + 65,000 (General and administrative) = $150,000

Step 3: Calculate the fixed cost per unit This is the total fixed costs divided by the number of units expected to be sold.

150,000/30,000units=150,000 / 30,000 units = 5 per unit

Step 4: Calculate the total cost per unit This is the sum of the total variable cost per unit and the fixed cost per unit.

125(Variablecostperunit)+125 (Variable cost per unit) + 5 (Fixed cost per unit) = $130 per unit

Step 5: Calculate the price Pinkin should charge This is the total cost per unit plus the desired markup. The markup is 25% of the total cost per unit.

130(Totalcostperunit)+0.25130 (Total cost per unit) + 0.25 * 130 (Markup) = $162.50

So, Pinkin should charge 162.50forthenewphonemodel.Thecorrectansweris162.50 for the new phone model. The correct answer is 162.50.

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