Question

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 50,000 units. Total Per Unit $45 $29 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $750,000 $13 $400,000 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 25% 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 25% on this new component. (Round markup percentage to 2 decimal places, e.g. 10.50%.) Markup percentage Target selling price $ e Textbook and Media Assuming that the volume is 40,000 units, compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 25% on this new component. (Round answers to 2 decimal places, e.g. 10.50% or 10.50.) Markup percentage Target selling price $ e Textbook and Media

Answer 1

Answer is given below with working

a) Mark up percentage 3.85% Target Selling price $135 $130 Total cost per unit ROI per unit Selling price per unit 55 $135 Total invested assets ROI at 25% ROI per unit $1,000,000 $250,000 $107 Variable cost per unit Fixed cost per unit Total cost per unit $23 $130 Per unit $45 $29 Direct material Direct labour Variable manufacturing overhead Variable selling and administrative overhead Variable cost per unit $20 $13 $107 Fixed manufacturing overheads Fixed selling and administrative overhead Fixed cost per unit Per unit $15 ($750,000/50,000) $8 ($400,000/50,000) $23 b) Mark up percentage 4.60% Target Selling price $142 Total cost per unit ROI per unit Selling price per unit $135.75 $6.25 $142.00 Total invested assets ROI at 25% ROI per unit $1,000,000 $250,000 $6.25 $107.00 Variable cost per unit Fixed cost per unit Total cost per unit $28.75 $135.75 Direct material Direct labour Variable manufacturing overhead Variable selling and administrative overhead Variable cost per unit Per unit $45.00 $29.00 $20.00 $13.00 $107.00 Fixed manufacturing overheads Fixed selling and administrative overhead Fixed cost per unit Per unit $18.75 ($750,000/40,000) $10.00 ($400,000/40,000) $28.75