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6. Full (Total) Costs Based on the cost of materials, direct labor,
manufacturing overhead, selling and administrative expenses.
7. Differential Costs Based on added costs that are identified to additional
units produced and sold, normally variable costs.
Sales Demand
in Units
10,000
20,000
30,000
Maxim can produce the above sales demand with its idle capacity. The
variable cost to produce and sell each unit is P4. The company will incur fixed costs
of P50,000 which will remain unchanged based on the above demand.
REQUIRED:
Prepare a schedule that will show which sales price per unit will contribute
the largest amount to profit.
EXAMPLE PROBLEM 2 (Mark-On on Different Bases)
The Pride Company started operations on January 1, 2008 and expected to
produce 200,000 units in its first year of operations. The cost data per unit based
on expected productions are shown below:
Direct materials
Direct labor
P48.00
Fixed overhead
12.00
Fixed selling and adm.
P3.00
2.00
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Variable overhead
Management is trying to decide on what selling price would they project the
2004 sales. You are asked to compute the selling price based on each of the
following independent cases below.
1.
2.
3.
4.
5.
6.
7.
EXAMPLE PROBLEM 3
Sport Company expects to produce 150,000 units of Product X during 2004.
The sales demand is expected to be 140,000 units. The company provided the
following data.
Standard Unit Cost:
Budgeted annual fixed and
Direct material
P 8.20
administrative
expenses
P200,000
Direct labor
4.50
Total capital employed
800,000
Variable overhead
2.30
Expected rare of return
Fixed overhead
2.00
on investment
30%
Standard Product Cost
P17.00
Variable selling & adm.
P 2.50
REQUIRED: a. Compute the expected selling price.
b. Compute the expected selling price if customers are entitled to a 3%
sales discount.
EXAMPLE PROBLEM 4
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The Retain Company started operations in 2004 with an expected production
of 120,000 units and sales volume of 110,000 units. It has a normal operating
capacity of 100,000 units. The following data were made available.
Variable mfg. cost per unit
Fixed mfg. cost per unit based on normal capacity
Variable selling and administrative cost per unit
Annual fixed selling and administrative expenses
Plant assets (fixed capital) used in operations
Expected ratio of current assets to projected sales
25.40
5.20
6.60
240,000
900,000
30%
The company is projecting a selling price that would give them a 25% return
on investment.
REQUIRED: Compute the selling price per unit that will meet the expected results
based on the above
data. Show proof of answer.
EXAMPLE PROBLEM 5
The Exxon Companys normal sales volume is 500,000 units. The unit cost to
make and sell Exxons product are as follows:
Direct materials
overhead
P15.00
Direct labor
8.00
Variable factory overhead
7.00
P50.00
Fixed factory
25.00
10.00
Beginning 2004, replacement cost of direct material is P55 per unit, labor
contract provides an increase of 20% and variable selling costs to increase by 10%.
Sales discount averages 3% on gross sales.
REUIRED: Compute the unit-selling price to be set-up if management desires a
profit of 25% based on
full costs.
END