Question

Ahmed Corporation makes a mechanical stuffed alligator. The following information is available for Ahmed Corporation's expected annual volume of 500,000 units: 

	Per Unit	Total
Direct materials	$14
Direct labour	9
Variable manufacturing overhead	11
Fixed manufacturing overhead		$325,000
Variable selling and administrative expenses	5
Fixed selling and administrative expenses		175,000

The company has a desired ROI of 40%. It has invested assets of $23,200,000. 

Calculate the total cost per unit. (Round answer to 2 decimal places, e.g. 15.25.) 

Total cost per unit $_______  

Calculate the desired ROI per unit. (Round answer to 2 decimal places, e.g. 15.25.) 

Desired ROI per unit $_______ 

 Calculate the markup percentage using the total cost per unit. (Round answer to 2 decimal places, e.g. 15.25%.) 

Markup percentage per unit _______ %

Calculate the target selling price. (Round answer to 2 decimal places, e.g. 15.25.) 

Target selling price $_______ 

Answer 1

Total cost per unit

Direct materials	$14
Direct labor	$9
Variable manufacturing overhead	$11
Fixed manufacturing overhead ($325,000/ 500,000 units)	$0.65
Variable selling and administrative expenses	$5
Fixed selling and administrative expenses ($175,000 / 500,000)	$0.35
Total cost per unit	$40

2.

Desired ROI per unit

ROI = Total assets * 40%

= $23,200,000 * 40%

= $9,280,000

ROI per unit = $9,280,000 / 500,000 units

= $18.56

3.

Markup percentage = Desired ROI per unit / Total cost per unit

= $18.56 / $40

= 46.40%

4.

Target selling price = Cost * 146.40%

= $40 * 146.40%

= $58.56