Morello Computer Parts management requests that the total cost per unit be used

Question

Morello Computer Parts management requests that the total cost per unit be used in cost-plus pricing its products. On this particular product, management also directs that the target price be set to provide a 21% return on investment (ROI) on invested assets of $1,153,000.

Morello Computer Parts Inc. is in the process of setting a selling price on a new component it has just designed and developed. The following cost estimates for this new component have been provided by the department for a budgeted volume of 49,380 units. Per Unit Total Direct materials $52.00 Direct labor $20.00 Variable manufacturing overhead $25.00 Fixed manufacturing overhead $592,560 Variable selling and administrative expenses $19.00 Fixed selling and administrative expenses $345,660

Morello Computer Parts management requests that the total cost per unit be used in cost-plus pricing its products. On this particular product, management also directs that the target price be set to provide a 21% return on investment (ROI) on invested assets of $1,153,000.

Explanation / Answer

variable cost per unit = 52 + 20 + 25 + 19 =116

fixed manufacturing overhead =592560 / 49380 = 12 per unit

fixed selling and admin expenses= 345660/49380 = 7 per unit

fixed cost per unit = 12 + 7 =19

total cost per unit = 116 + 19 = 135

expected income = 21% * 1153000 = 242130

desired ROI per unit = 242130/49380= 4.9 per unit

markup percentage = 4.9/135= 3.63 %

target selling price = 133 + 133 * 3.63% = 137.83

i am working on part b ...wait for it till then

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