Parisian Accessories Inc. produces women’s handbags. The cost of producing 800 handbags is as follows

Parisian Accessories Inc. produces women’s handbags. The cost of producing 800 handbags is as follows:

Direct materials         $15,000
Direct labor               7,000
Factory overhead           5,000
Total manufacturing cost $27,000

The selling and administrative expenses are $24,000. The management desires a profit equal to 15% of invested assets of $200,000.

a. Determine the amount of desired profit from the production and sale of 800 handbags.

b. Determine the product cost per unit for the production of 800 handbags.

c. Determine the product cost markup percentage for handbags.

d. Determine the selling price of handbags.


Answer:

a. Desired profit = $200,000 × 15% = $30,000 
b. Cost amount (product cost) per unit:  $27,000 ÷ 800 units = $33.75 
c. Markup Percentage = 
Markup Percentage = 
Desired Profit + 
Total Selling and Administrative Expenses 
Total Manufacturing Costs 

$30,000 + $24,000 
$27,000 
Markup Percentage =  200% 
d. Cost amount (product cost) per unit……………………………………………… $  33.75 
Markup ($33.75 × 200%)………………………………………………………………    67.50 
Selling price…………………………………………………………………………… $101.25