Question

Garcia Co. sells snowboards. Each snowboard requires direct materials of \(100, direct labor of \)30, and variable overhead of \(45. The company expects fixed overhead costs of \)635,000 and fixed selling and administrative costs of $115,000 for the next year. It expects to produce and sell 10,000 snowboards in the next year. What will be the selling price per unit if Garcia uses a markup of 15% of total cost?

Short answer

The selling price per snowboard is $286.

Step-by-step solution

Definition of direct labor

Direct labor is the labor directly related to the company’s production activities.

Calculation of selling price per unit

The unit fixed cost is calculated before calculating the selling price per unit.

$\begin{array}{rcl}& & \mathbf{\text{Unit}}\mathbf{ }\mathbf{ }\mathbf{\text{Fixed}}\mathbf{ }\mathbf{ }\mathbf{\text{Cost =}}\mathbf{ }\mathbf{ }\mathbf{\text{Fixed}}\mathbf{ }\mathbf{ }\mathbf{\text{Overhead +}}\mathbf{ }\mathbf{\text{Administrative}}\mathbf{ }\mathbf{ }\mathbf{\text{costs}}\\ & & \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{\text{=}}\mathbf{ }\mathbf{\text{\$ 635,000 +}}\mathbf{ }\mathbf{\text{\$ 115,000}}\\ & & \mathbf{\text{= \$ 740,000}}\\ & & \end{array}$

$\begin{array}{rcl}& & \mathbf{\text{Fixed}}\mathbf{ }\mathbf{ }\mathbf{\text{Cost}}\mathbf{ }\mathbf{ }\mathbf{\text{per}}\mathbf{ }\mathbf{ }\mathbf{\text{unit =}}\mathbf{ }\frac{\mathbf{\text{Total}}\mathbf{ }\mathbf{ }\mathbf{\text{Fixed}}\mathbf{ }\mathbf{ }\mathbf{\text{Cost}}}{\mathbf{\text{No.}}\mathbf{ }\mathbf{ }\mathbf{\text{of}}\mathbf{ }\mathbf{ }\mathbf{\text{Units}}\mathbf{ }\mathbf{ }\mathbf{\text{Produced}}}\\ & & \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{\text{=}}\frac{\mathbf{\text{\$ 740,000}}}{\mathbf{\text{10,000}}}\\ & & \mathbf{\text{= \$ 74}}\\ & & \end{array}$

$\begin{array}{rcl}& & \mathbf{\text{Total}}\mathbf{ }\mathbf{ }\mathbf{\text{Cost}}\mathbf{ }\mathbf{ }\mathbf{\text{Per}}\mathbf{ }\mathbf{ }\mathbf{\text{Unit =}}\mathbf{ }\mathbf{\text{Direct}}\mathbf{ }\mathbf{ }\mathbf{\text{Labor +}}\mathbf{ }\mathbf{\text{Direct}}\mathbf{ }\mathbf{ }\mathbf{\text{Material +}}\mathbf{ }\mathbf{\text{Variable}}\mathbf{ }\mathbf{\text{Overhead +}}\mathbf{ }\mathbf{\text{Fixed}}\mathbf{ }\mathbf{ }\mathbf{\text{Cost}}\mathbf{ }\mathbf{ }\mathbf{\text{Per}}\mathbf{ }\mathbf{ }\mathbf{\text{Unit}}\\ & & \mathbf{\text{= \$ 30 +}}\mathbf{ }\mathbf{\text{\$ 100 + \$ 45 +}}\mathbf{ }\mathbf{\text{\$ 74}}\\ & & \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{\text{=}}\mathbf{ }\mathbf{\text{\$ 249}}\\ & & \end{array}$

$\begin{array}{rcl}& & \mathbf{\text{Selling}}\mathbf{ }\mathbf{ }\mathbf{\text{Price}}\mathbf{ }\mathbf{ }\mathbf{\text{Per}}\mathbf{ }\mathbf{ }\mathbf{\text{Unit =}}\mathbf{ }\mathbf{\text{Total}}\mathbf{ }\mathbf{ }\mathbf{\text{Cost}}\mathbf{ }\mathbf{ }\mathbf{\text{Per}}\mathbf{ }\mathbf{ }\mathbf{\text{Unit +}}\mathbf{ }\mathbf{\text{15\%}}\mathbf{ }\mathbf{ }\mathbf{\text{of}}\mathbf{ }\mathbf{ }\mathbf{\text{total}}\mathbf{ }\mathbf{ }\mathbf{\text{cost}}\\ & & \mathbf{\text{=}}\mathbf{ }\mathbf{\text{\$ 249 +}}\mathbf{ }\mathbf{\text{\$ 37}}\\ & & \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{\text{=}}\mathbf{ }\mathbf{\text{\$ 286}}\\ & & \end{array}$