Alma’s Recording Studio rents studio time to musicians in 2-hour blocks. Each se
ID: 2479945 • Letter: A
Question
Alma’s Recording Studio rents studio time to musicians in 2-hour blocks. Each session includes the use of the studio facilities, a digital recording of the performance, and a professional music producer/mixer. Anticipated annual volume is 1,280 sessions. The company has invested $2,352,000 in the studio and expects a return on investment (ROI) of 20%. Budgeted costs for the coming year are as follows.
Per Session Total
Direct materials (CDs, etc.) $ 20.24
Direct labor $403.00
Variable overhead $ 50.00
Fixed overhead $1,217,280
Variable selling and administrative expenses $ 40.00
Fixed selling and administrative expenses $641,280
a) Determine the total cost per session.
Total Cost $______________________ per session
b) Calculate the markup percentage on the total cost per session.
Markup percentage _________________%per session
c) Calculate the target price per session
Target price $_________________________ per session
Explanation / Answer
Alma's Recording Studio Details Amt $ Investment in Studio= 2,352,000 Required ROI @ 20%= 470,400 Cost estimate Per session 1280 session Direct Materials 20.24 25,907 Direct Labor 403.00 515,840 Variable Overhead 50.00 64,000 Variable selling & Admin Expense 40.00 51,200 Total Variable Expense 656,947 Fixed Costs Fixed Overheads 1,217,280 Fixed selling & Admin expenses 641,280 Total 1,858,560 Total Cost of 1280 sessions 2,515,507 a Cost per session $ 1,965.24 c Total Cost of 1280 sessions 2,515,507 Add Required return = 470,400 Total Revenue required 2,985,907 No of sessions 1,280 Target Price per session = $ 2,332.74 b Target Price per session = $ 2,332.74 Cost per session 1,965.24 Mark up per session= $ 367.50 Mark up % on total cost per session= 18.70%
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