Joey’s Recording Studio rents studio time to musicians in 2-hour blocks. Each se

Question

Joey’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 1,000 sessions. The company has invested $2,000,000 in the studio and expects a return on investment (ROI) of 16.5%. Budgeted costs for the coming year are as follows.

                                                                                          Per Session               Total    

            Direct materials (tapes, CDs, etc)                             $60

            Direct labor                                                               $400

            Variable overhead                                                     $50

            Fixed overhead                                                                                      $850,000

            Variable selling and administrative expenses           $40

            Fixed selling and administrative expenses                                           $800,000

(a) Determine the total cost per session.

(b) Determine the desired ROI per session.

(c) Calculate the mark-up percentage on the total cost per session.

(d) Calculate the target price per session.

Explanation / Answer

a)

Total cost per session no of annual sessions 1000 variable cost direct material 60 direct labor 400 variable overheadd 50 variable selling n admin 40 fixed OH 850000 850 Fixed selling n admin 800000 800 total cost per session 2200

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