Multiple Choice
When purchases equal the invoice amount, which of the following is true regarding net sales?
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4. Merchandising Operations
Net Sales
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To determine a product's selling price based on the total cost method, management should include:
A
Only variable costs and a markup for profit
B
All variable costs, all fixed costs, and a markup for profit
C
Only direct material and direct labor costs
D
Only selling and administrative expenses
Verified step by step guidance1
Understand the total cost method: This method involves calculating the total cost of producing a product, which includes all variable costs, all fixed costs, and then adding a markup for profit to determine the selling price.
Identify the variable costs: These are costs that change with the level of production, such as direct materials, direct labor, and variable manufacturing overhead.
Identify the fixed costs: These are costs that remain constant regardless of production levels, such as rent, salaries, and depreciation.
Add the variable costs and fixed costs together to calculate the total cost of production. Use the formula:
Apply the markup for profit: Once the total cost is calculated, add a percentage markup to cover profit. The selling price is determined using the formula:
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