Question

National Corporation needs to set a target price for its newly designed product M14–M16. The following data relate to this new product.

		Per Unit			Total
Direct materials		$26
Direct labor		$44
Variable manufacturing overhead		$15
Fixed manufacturing overhead					$1,377,000
Variable selling and administrative expenses		$ 5
Fixed selling and administrative expenses					$ 1,053,000

These costs are based on a budgeted volume of 81,000 units produced and sold each year. National uses cost-plus pricing methods to set its target selling price. The markup percentage on total unit cost is 40%.

Compute the total variable cost per unit, total fixed cost per unit, and total cost per unit for M14–M16.

Variable cost per unit		$enter a dollar amount
Fixed cost per unit		enter a dollar amount
Total cost per unit		$enter a total of the two previous amounts

Compute the desired ROI per unit for M14–M16.

Desired ROI

$enter the desired ROI per unit in dollars

per unit

Compute the target selling price for M14–M16.

Target selling price per unit

$enter the target selling price per unit in dollars

Compute variable cost per unit, fixed cost per unit, and total cost per unit assuming that 60,750 M14–M16s are produced and sold during the year.

Variable cost per unit		$enter a dollar amount
Fixed cost per unit		enter a dollar amount
Total cost per unit		$enter a total of the two previous amounts

Answer 1

Direct materials	26
Direct labor	44
Variable manufacturing overhead	15
Variable selling and administrative expenses	5
Variable cost per unit	90
Fixed cost per unit	30	=(1377000+1053000)/81000
Total cost per unit	120
Desired ROI	48	=120*40%
Total cost per unit	120
Add: Desired ROI per unit	48
Target selling price per unit	168
Variable cost per unit	90
Fixed cost per unit	40	=(1377000+1053000)/60750
Total cost per unit	130