CHAPTER 17

Problem 17-2: Burtis Company

Calculation of normal selling price for 20x3 assuming continued use of full cost:

20x2
Increase
20x3
Direct material.........................................................................................................................................................................
$ 4.00
$ .48*
$ 4.48
Direct labor..............................................................................................................................................................................
7.00
.84*
7.84
Indirect manufacturing.............................................................................................................................................................
4.80
.60
5.40
Selling and administrative........................................................................................................................................................
3.50
.00
3.50
Total full cost
19.30
1.92
21.22
.................................................................................................
...........................................................................................................................................................................................
Profit (10%).............................................................................................................................................................................
1.93
.19
2.12
Selling price.............................................................................................................................................................................
$21.23
$2.11
$23.34
*12 percent increase for direct material (.12 x $4.00 = $.48) and for direct labor (.12 x $7.00 = $.84)
$6,000 increase with volume of 10,000 units = increase of $.60 per unit.

Problem 17-3: Micha Smith

a.

b.

Total costs $5,700 + Desired profit $3,300

150 hours
= $60.00 per hour

Fee per hour =

Revenue, 100 hours @ $60................................................................................................................................

$6,000
Costs..................................................................................................................................................................
5,700
Profit..................................................................................................................................................................
$ 300

Problem 17-4: Valade Company

a. Calculation of selling prices:

Total
Product
Product
Company
___J___
___K___
Direct manufacturing cost........................................................................................................................................................
$ 700,000
$400,000
$300,000
Indirect manufacturing cost......................................................................................................................................................
280,000
160,000
120,000
Selling and administrative cost.................................................................................................................................................
140,000
80,000
60,000
Full cost...................................................................................................................................................................................
1,120,000
640,000
480,000
Desired profit*.........................................................................................................................................................................
280,000
160,000
120,000
Sales revenue...........................................................................................................................................................................
$1,400,000
$800,000
$600,000
Divide by units.........................................................................................................................................................................
10,000
10,000
Selling price per unit................................................................................................................................................................
$80.00
$60.00
*The desired profit of 280,000 for the company as a whole is 25 percent of the companys full cost. Therefore, a 25 percent profit
margin percentage is applied to the full cost of each product to obtain the selling price.

The profit percentage is equal to:

(Desired profit + Selling and administrative cost) Full production cost. For Product A it equals
($160,000 + 80,000)/560,000 = 42.86% which is the same as for product K = ($120,000 + $60,000)/
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$420,000 = 42.86%
b
.

Total
Product
Product
Company
___A___
___B___
Sales revenue*.................................................................................................................................................................
$1,248,000
$384,000
$864,000
Full cost+........................................................................................................................................................................
1,040,000
320,000
720,000
Profit...............................................................................................................................................................................
$ 208,000
$ 64,000
$144,000

*Sales Revenue
A: 5,000 units @ $76.80 = $384,000
B: 15,000 units @ $57.60 = $864,000

+Full Cost
$640,000

= $320,000

$480,000

= $720,000
B: (15,000 units)
10,000
units

A: (5,000)

10,000 units

c.
Profit margin pricing results in product prices containing identical profit percentages.
However, the product with the higher price will yield the higher total dollar profit. Therefore, a
shift in product mix toward lower price items will reduce total dollar profits for the company as a
whole.

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