Problem 22-2A (Part Level Submission) Lovell Computer Parts Inc. is in the proce

Question

Problem 22-2A (Part Level Submission) Lovell 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 accounting department for a budgeted volume of 54,840 units.
Per Unit Total Direct materials $47 Direct labor $29 Variable manufacturing overhead $16 Fixed manufacturing overhead $822,600 Variable selling and administrative expenses $23 Fixed selling and administrative expenses $329,040
Lovell 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 22% return on investment (ROI) on invested assets of $1,138,000.

Explanation / Answer

ROI = Profit / Iniial Investment

Per Unit Total (54840 units) Direct materials $47 $2,577,480 Direct labor $29 $1,590,360 Variable manufacturing overhead $16 $877,440 Fixed manufacturing overhead $15 $822,600 Variable selling and administrative expenses $23 $1,261,320 Fixed selling and administrative expenses $6 $329,040 Total $136 $7,458,240 ROI 22% Investment $1,138,000 Total Profit Required $250,360.00 Per Unit Profit required $4.57 Selling Price per unit $140.57 Markup % 3.36%

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