How Wallis Company Generates Profits with Circuit Boards?

How does Wallis Company calculate its net profit per unit?

A. By adding material, labor, and overhead costs

B. By subtracting material cost from selling price

C. By calculating the VAT amount

D. By dividing the total cost by the number of units

Answer:

The correct answer is A. By adding material, labor, and overhead costs.

Wallis Company is a manufacturer of circuit boards produced in a foreign country that imposes a 15 percent VAT on goods. This year, Wallis manufactured 6.4 million boards with a material cost of $2.80 per unit and added $0.56 for labor and overhead costs per unit.

To calculate the net profit per unit, Wallis sold the boards to various customers for $4.20 per unit. By subtracting the total cost per unit ($2.80 material cost + $0.56 labor and overhead cost) from the selling price, we arrive at the net profit per unit of $0.84.

This means that Wallis generates a net profit of $0.84 for each circuit board sold after covering material, labor, and overhead expenses. The company's efficient production process and pricing strategy have led to a successful business model in the circuit board industry.