National Corporation needs to set a target price for its newly designed product
ID: 2479044 • Letter: N
Question
National Corporation needs to set a target price for its newly designed product M14–M16. The following data relate to this new product.Per Unit Total Direct materials $ 26 Direct labor $ 44 Variable manufacturing overhead $ 15 Fixed manufacturing overhead $ 1,377,000 Variable selling and administrative expenses $ 8 Fixed selling and administrative expenses $ 1,215,000
These costs are based on a budgeted volume of 81,000 units produced and sold each year. National uses cost-plus pricing methods to set its target selling price. The markup percentage on total unit cost is 39 %.
Explanation / Answer
1. Total variable cost per unit=
Direct material+direct labour+ variable manufacturing overhead+ variable selling and administration expenses
=27=6+44+15+8
=93 per unit
2. Fixed cost per unit
=(fixed manufacturing overhead+fixed selling and administration expense)/81000
=(1377000+1215000)/81000
=32 per unit
3. Total cost per unit
=variable cost per unit+fixed cost per unit
=93+32
=125 per unit
4. Desired ROI
Total cost=125
Mark up=39%
Desired ROI=124×.39
=48.75
5. Target selling price
=total cost +mark up
=125+48.75
=173.75 per unit
6. At 60300 units
Variable cost per unit=93
Fixed cost per unit =2592000/60300=42.99
Total common per unit=93+42.99=135.99 per unit
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.