Problem M-2 Lovell Computer Parts Inc. is in the process of setting a selling pr

Question

Problem M-2 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 52,000 units. Per Unit Total Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $45 $21 $15 $624,000 $17 $468,000 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 27% return on investment (ROI) on invested assets of $1,172,800 Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 27% on this new component (Round answers to 2 decimal places, e.g. 10.50.) Markup percentage Target selling price

Explanation / Answer

Variable cost per unit = 45 + 21 + 15 + 17 = $98

Fixed cost per unit-

Fixed manufacturing overhead per unit: 624000 / 52000 = $12

Fixed selling and admin exps. per unit: 468000 / 52000 = $9

Total fixed cost per unit = $21

Desired ROI: 1172800 * .27 = $316656

ROI per unit: 316656 / 52000 = $6.08

Computation of Selling price per unit:

Mark up percentage: Desired ROI per unit / Total unit cost

Mark up percentage: 6.08 / 119 = 5.11%

Variable cost/unit 98 Fixed cost/unit 21 Total unit cost 119 ROI per unit 6.08 Selling Price per unit 125.08

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.