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Problem 21-02A Lovell Computer Parts Inc. is in the process of setting a selling price on a new component it has just designeAssuming that the volume is 40,000 units, compute the markup percentage and target selling price that will allow Lovell Compu

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Answer #1

1.

Markup % (6/129)*100 4.65%
Desired selling price (129 + 6) $                 135.00

Working:

Variable cost per unit
Per Unit $
Direct Material 48
Direct Labor 25
Variable Manufacturing Overhead 22
Variable Selling and Administrative expenses 15
Total Variable cost 110
Fixed Cost per unit Total units Cost per unit
Fixed Manufacturing Overhead 700000 50000 14
Fixed Selling and Administrative expenses 250000 50000 5
Total fixed cost 950000 19
Total cost per unit 129
Desired ROI (1,000,000*30%) 300000
Desired ROI per unit (300000/50,000) 6
Desired selling price (129 + 6) $                 135.00
Markup % (6/129)*100 4.65%

2.

Markup % (7.5 /133.75)*100 5.61%
Desired selling price (133.75 + 7.5) $                 141.25

Working:

Variable cost per unit
Per Unit $
Direct Material 48
Direct Labor 25
Variable Manufacturing Overhead 22
Variable Selling and Administrative expenses 15
Total Variable cost 110
Fixed Cost per unit Total units Cost per unit
Fixed Manufacturing Overhead 700000 40000 17.5
Fixed Selling and Administrative expenses 250000 40000 6.25
Total fixed cost 950000 23.75
Total cost per unit (110+23.75) 133.75
Desired ROI (1,000,000*30%) 300000
Desired ROI per unit (300000/40,000) 7.5
Desired selling price (133.75 + 7.5) $                 141.25
Markup % (7.5 /133.75)*100 5.61%
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