Reference no: EM132899664

Question - The RAINBOW company uses the product cost concept of applying the cost-plus approach to product pricing. The costs and expenses of producing 80,000 units of the product are:

Variable costs:

Direct materials $5.70

Direct labor 9.25

Factory overhead 4.00

Selling and administrative expenses 4.25

Total $23.20

Fixed costs:

Factory overhead $240,000

Selling and administrative expenses $114,500

The RAINBOW company desires a profit equal to a 16% rate of return on invested assets of $1,275,000.

(a) Determine the amount of desired profit from the production and sale of the product.

(b) Determine the total manufacturing costs and the cost amount per unit for the production and sale of 80,000 units of the product.

(c) Determine the markup percentage for the product.

(d) Determine the selling price of the product.

(e) Discuss what the company can do to increase the Gross Margin 5%.