Question

Problem 21-02A 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 48,000 units. Total Per Unit $53 $30 $16 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $720,000 $14 $432,000 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 24% return on investment (ROI) on invested assets of $1,000,000. Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 24% on this new component. (Round markup percentage to 2 decimal places, e.g. 10.50%.) Markup percentage Target selling prices

Answer 1

Sol Ca) Calculation of Total Cost Per Uuit Particulais Direet Matericul's Direct laber Variable Manufacturing Overhead fixed Mamufacusin dverhead Vemiable Seling and Administrakive Expenses fixed Selling and Administrakive Expenses १० - b২০ ( Cost Per Uuit $53 $30 $16 $15 $14 $137 To taul desired Profit = $1000,0c0 X 24% $240,000 Toteal desived Profit Budgeted Volume Profit Per Uuit = $240.000 48,000 $5 Profit Per Uuil Markup Pencentege X 100 Total Cosi-Per Uuit $5 X100 $137 3.65% Taoget Selling Porice = Total Cost PerLuik + Profik Per Duit $ 137 + $ 5 $142

Sol.(b) eadculation of Totaul Cost Per uu't Particula's Direch Materil's Diree|a৬০ Variable Mamufacturing Oueshead fixed Manufuctering overhead Variable selling audadmisnistrative Expenses fixed Selling ud administrakve Expenses Potaul eest er Uu't estPer luit $53 $30 $16 $18.75 $14 $11.25 $143 Totad desired Profit = $1000,000 X 24% = $240,000 ৭ aesraPnt budgeted volume Profit Per Unit = $240,000 38,400 $6.25 Markup Perceutagei Prot Per Uuit Total Cost Peruwit $6.25 ॐ।५3 X100 4.37% Tanget Salling Price ) = Totaul Cost per Uuit t`Profit Per Uuit. =$143 + $ 6.25 ॐ।५१.25

Working Note:-a) (a) fixed Manufackuring Overhead fer uiei't=> fired ManufacturinggDverhend Budgeted volime $ 720,000 48000 Uuit's %3D $15 Per Uuit. fixed Selling end Administrative Expensedper uwt) - Fred Seling aud Admoinistrakive Expense budgeted Volume $432.000 48,000 Uuit's $9 Per Uuit.

wlerlengtei- (b ) fixed Manufackuring Drerlead fer wuit s) fired Manufacluorg Dveihead Budgeted volume $ 720,000 38,400 Ueuilt's $18.75 Per Uuit. fixed Selling auad Adlministrative Expense fer vu't z) Lixed Seling auel Administrebire Expense Bidgeked Voleme $432,000 38,400 Uuit's $ 11,25 Per uuit