Calculate the product cost per unit:
Product cost per unit : It is the material cost, labor cost, and the overheads that are incurred on a single unit of the product.
The product cost per unit using Exhibit 2 can be calculated using the following spreadsheet:
Thus, the unit cost calculated for valves is $37.56 , a pump is $63.12 , and a flow controller is $56.50.
The estimated contribution margin for the three products can be calculated using the following strategy:
It is the difference between the revenue and the variable cost.
Referring to the exhibits 1 and 2 the contribution is calculated as below:
The contribution for valves is calculated as $37.76 , for pumps it is $53.21 and flow controller is $68.19.
Calculate the revised product costs using the following spreadsheet:
The revised standard costs for valves, pumps and flow controllers are calculated as