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 53,000 units Per Unit Total Direct materials $52 Direct labor $22 Variable manufacturing overhead $18 $689,000 Fixed manufacturing overhead Variable selling and administrative expenses $16 Fixed selling and administrative expenses $424,000 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 30% return on investment (ROI) on invested assets of $1,117,300. Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 30% on this new component. (Round answers to 2 decimal places, e.g. 10.50.) Markup percentage Target selling price Assuming that the volume is 37,700 units, compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 30% on this new component (Round answers to 2 decimal places, e.g. 10.50.) Markup percentage % Target selling price

Answer 1

1
Direct materials	52
Direct labor	22
Variable manufacturing overhead	18
Fixed manufacturing overhead	13	=689000/53000
Variable selling and administrative expenses	16
Fixed selling and administrative expenses	8	=424000/53000
Total cost per unit	129
Desired ROI per unit	6.32	=(1117300*30%)/53000
Desired ROI per unit	6.32
Divide by Total cost per unit	129.00
Markup Percentage	4.90%
Target Selling price	135.32	=129+6.32
2
Direct materials	52.00
Direct labor	22.00
Variable manufacturing overhead	18.00
Fixed manufacturing overhead	18.28	=689000/37700
Variable selling and administrative expenses	16.00
Fixed selling and administrative expenses	11.25	=424000/37700
Total cost per unit	137.52
Desired ROI per unit	8.89	=(1117300*30%)/37700
Desired ROI per unit	8.89
Divide by Total cost per unit	137.52
Markup Percentage	6.46%	or 6.47%
Target Selling price	146.41	=137.52+8.89