If Apple uses the variable cost method to set selling prices and plans a markup of 200% of variable costs, what is the expected selling price per unit of this new phone? 2. Assume that Apple is a "price taker" and the market sales price for this type of phone is $800 per unit. Compute Apple’s target cost if the company desires a profit of 60% of sales price.

Assume Apple is designing a new smartphone. Each unit of this new phone is expected to require $230 of direct materials, $10 of direct labor, $20 of variable overhead, and $20 of variable selling and administrative costs.

Answer:

Apple

1. The expected selling price per unit of this new phone is:

= $860.

2. Apple's target cost if the company desires a profit of 60% of the sales price is:

= $320.

Explanation:

a) Data and Calculations:

Method of setting prices = 200% Markup on Variable Cost

Direct materials cost per unit = $230

Direct labor cost per unit = $10

Variable overhead cost per unit = $20

Variable selling and administrative cost per unit = $20

Total variable cost = $280

Markup = $560

Expected selling price = $840

Selling price per unit = $800

Target profit of sales price = 480

Target cost = $320

= $800 * (100 - 60)

= $320