Questions: Rock Hill Relaxation Company sells vitamin supplements. They have collected the following budget information about the 10,000 bottles of supplements they expect to sell; Total Direct Material Cost 27,000, Total Direct Labor Cost 15,000, Total Manufacturing Overhead Cost 12,000, Total Selling and Administrative Expenses 8,000. Rock Hill's desired profit is a 50% return on investment of their 90,000 of total assets. At what amount should Rock Hill price its supplements, if they are using the Product Cost Method of pricing? a.) 10.70 b.) 5.30 c.) 15.75 d.) 13.65

Rock Hill Relaxation Company sells vitamin supplements. They have collected the following budget information about the 10,000 bottles of supplements they expect to sell; Total Direct Material Cost 27,000, Total Direct Labor Cost 15,000, Total Manufacturing Overhead Cost 12,000, Total Selling and Administrative Expenses 8,000. Rock Hill's desired profit is a 50% return on investment of their 90,000 of total assets.

At what amount should Rock Hill price its supplements, if they are using the Product Cost Method of pricing?
a.) 10.70
b.) 5.30
c.) 15.75
d.) 13.65

Transcript text: Rock Hill Relaxation Company sells vitamin supplements. They have collected the following budget information about the 10,000 bottles of supplements they expect to sell; Total Direct Material Cost $\$ 27,000$, Total Direct Labor Cost $\$ 15,000$, Total Manufacturing Overhead Cost $\$ 12,000$, Total Selling and Administrative Expenses $\$ 8,000$. Rock Hill's desired profit is a $50 \%$ return on investment of their $\$ 90,000$ of total assets. At what amount should Rock Hill price its supplements, if they are using the Product Cost Method of pricing? a.) $\$ 10.70$ b.) $\$ 5.30$ c.) $\$ 15.75$ d.) $\$ 13.65$

Solution

Solution Steps

Step 1: Calculate Total Cost

The total cost of producing the vitamin supplements is calculated by summing the direct material cost, direct labor cost, manufacturing overhead cost, and selling and administrative expenses:

\[ \text{Total Cost} = 27000 + 15000 + 12000 + 8000 = 62000 \]

Step 2: Calculate Desired Profit

The desired profit is determined as 50% of the total assets:

\[ \text{Desired Profit} = 0.50 \times 90000 = 45000 \]

Step 3: Calculate Total Revenue Needed

The total revenue needed to cover both the total cost and the desired profit is:

\[ \text{Total Revenue Needed} = \text{Total Cost} + \text{Desired Profit} = 62000 + 45000 = 107000 \]

Step 4: Calculate Price per Bottle

Finally, the price per bottle is calculated by dividing the total revenue needed by the number of bottles:

\[ \text{Price per Bottle} = \frac{107000}{10000} = 10.7 \]