Answer:
A. Desired Profit = $55,000
B. Product cost = $40
C. The product cost markup percentage = 225%
D. The sale price of handbags = $130 for 1 bag, $104,000 for 800 bags.
Explanation:
Requirement A
Here,
Desired Profit ($) = Invested assets x Desired profit in percentage
Given,
Invested assets = $250,000
Desired profit in percentage = 22%
The amount of desired profit from the production and sale of 800 handbags
= $250,000 x 22%
= $55,000
Requirement B
Product Cost = When the cost is directly related to the production of a specific product, it is called product cost. It means the materials, direct labor, and factory related costs are added to determine the product cost. No selling and administrative expenses are added in calculating product cost.
Given,
Direct materials $18,000
Direct labor $ 8,500
Factory overhead $ 5,500
Total manufacturing cost $32,000
Product cost = [tex]\frac{Total Manufacturing Cost}{Number of bags}[/tex]
Product cost for 800 handbags will be = [tex]\frac{32,000}{800}[/tex]
Product cost = $40.
Requirement C & D
We know,
The product cost markup percentage = [tex]\frac{Selling price - Product cost}{Product Cost}[/tex] x 100
We get product cost for each bag (from requirement B) = $40
We need to find total selling price for 800 bags =
Product cost + Selling and administrative expenses + desired profit
= $32,000 + $17,000 + $55,000
= $104,000
The sale price for 1 bag = [tex]\frac{104,000}{800}[/tex] = $130
Therefore,
The product cost markup percentage = [tex]\frac{130 - 40}{40}[/tex] x 100
The product cost markup percentage = [tex]\frac{90}{40}[/tex] x 100
The product cost markup percentage = 225%
