Question

GoSnow sells snowboards. Each snowboard requires direct materials of $128, direct labor of $53, and variable overhead of $63. The company expects fixed overhead costs of $844,976 and fixed selling and administrative costs of $391,000 for the next year. The company has a target profit of $290,000. It expects to produce and sell 11,800 snowboards in the next year. The company has a target profit of $189,800. It expects to produce and sell 11,800 snowboards in the next year. Required:Compute the selling price using the variable cost method.

Answer 1

$364.83

Explanation:

The computation of selling price using the variable cost method is shown below:-

Sales units for target profit = (Total fixed costs + Target profit) ÷ (Selling price per unit - Total Variable cost per unit)

11,800 = ($1,235,976 + $189,800) ÷ (Selling price per unit - $244)

11,800 = ($1,425,776) ÷ (Selling price per unit - $244)

(Selling price per unit - $244) = $1,425,776 ÷ 11,800

(Selling price per unit - $244) = 120.83

Selling price per unit = $120.83 + 244

= $364.83

Working note

Total fixed cost = Fixed overhead costs + Fixed selling and administrative costs

= $844,976 + $391,000

= $1,235,976

Total variable cost = Direct materials + Direct labor + and variable overhead

= $128 + $53 + $63

= $244