Assignment 17.4 Manufacturing Cost and Selling Price for a Turbine


A manufacturer of a small hydraulic turbine has the annual cost data given. Calculate the manufacturing cost and the selling price for the turbine.

Raw material and components costs               $2,150,000
Direct labor                                                     $950,000
Direct expenses                                               $60,000
Plant manager and staff                                    $180,000
Utilities for plant                                               $70,000
Taxes and insurance                                         $50,000
Plant and equipment depreciation                    $120,000
Warehouse Expenses                                       $60,000
Office Utilities                                                  $10,000
Engineering expenses (plant)                             $90,000
Engineering staff and salaries (plant)                  $30,000
Administrative staff salaries                              $120,000
Sales staff, salaries and commissions                $100,000
Total Annual Sales                                           60 units
Profit Margin                                                   15%

Variable costs
Raw material and components costs               $2,150,000
Direct labor                                                    $950,000
Direct expenses                                              $60,000
Engineering expenses (plant)                            $90,000
Engineering staff and salaries (plant)                 $30,000
Total Variable Costs                                       $3,280,000

Factory Expenses
Utilities for plant                                             $70,000
Taxes and insurance                                        $50,000
Plant and equipment depreciation                    $120,000
Warehouse Expenses                                      $60,000
Total Factory Expenses                                  $300,000

General and Administrative Expenses (G & A)
Plant manager and staff                                  $180,000
Office Utilities                                                $10,000
Administrative staff salaries                             $120,000
Total G & A                                                   $310,000

Manufacturing Cost = Variable costs + Factory Expenses + General and Administrative Expenses
                                  = $3,280,000 + $300,000 + $310,000
                                  = $3,890,000

Sales, staff, salaries and commissions      $100,000
Total Cost = Manufacturing costs + Sales, staff, salaries and commissions
                  = $3,990,000

Profit Margin = Profit / Sales = 15%
Profit (P) = Selling Price (S) – Total Cost (CT)
S = P + CT
S = 0.15S + CT
S – 0.15S = CT
0.85S = CT
S = CT / 0.85
S = $3,990,000 / 0.85
S = $4,694,117.65

Total Annual Sales = 60 units
Selling Price for One Turbine = S / 60
                                                 = $4,694,117.65 / 60
Selling Price                           = $78,235.29 per unit