Product Pricing using the Cost-Plus Approach Methods; Differential Analysis for Accepting Additional Business

Night Glow Inc. recently began production of a new product, the halogen light, which required the investment of $2,340,000 in assets. The costs of producing and selling 11,700 halogen lights are estimated as follows:

Variable costs per unit:			Fixed costs:
Direct materials	$117		Factory overhead	$468,000
Direct labor	25		Selling and administrative expenses	234,000
Factory overhead	53
Selling and administrative expenses	46
Total variable cost per unit	$241

Night Glow Inc. is currently considering establishing a selling price for the halogen light. The president of Night Glow Inc. has decided to use the cost-plus approach to product pricing and has indicated that the halogen light must earn a 20% return on invested assets.

Required Note: Round all markup percentages to two decimal places, if required. Round all costs per unit and selling prices per unit to the nearest whole dollar 1. Determine the amount of desired profit from the production and sale of halogen lights 468,000 2. Assuming that the product cost method is used, determine the following a. Product Cost amount per unit b. Markup Percentage c. Selling price per unit 3. (Appendix) Assuming that the total cost method is used, determine the following: a. Total Cost amount per unit b. Markup Percentage c. Selling price per unit 4. (Appendix) Assuming that the variable cost method is used, determine the following: a. Variable cost amount per unit b. Markup Percentage c. Selling price per unit 5. The cost-plus approach price computed above should be viewed as a general guideline for establishing long-run normal prices; however, other considerations, such as the price of competing products and general economic conditions of the marketplace , could lead management to establish a different short-run price 235 45.111 % 341 301 13.291 % a. Varilable cost amount per unit 241 41.491 % 341 X