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 Total Unit Direct materials $21 Direct labor $46 Variable manufacturing overhead $15 Fixed manufacturing overhead $1,200,000 Variable selling and administrative expenses $8 Fixed selling and administrative expenses $ 1,200,000 These costs are based on a budgeted volume of 80,000 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%.

Answer 1

Solution:
a.	Variable cost per unit	90	A
	Fixed cost per unit	30	B
	Total cost per unit	120	C=A+B
Working Notes:
	Variable cost per unit
	Direct materials	21
	Direct labor	46
	Variable manufacturing overhead	15
	Variable selling and administrative expenses	8
	Variable cost per unit	90
Notes:	fixed cost per unit is the total fixed cost divided by total units
	Fixed cost per unit	A	B
		Total costs	Volume
	Fixed manufacturing overhead	1200000	80000
	Fixed selling and administrative expenses	1200000	80000
			Fixed cost per unit
Notes:	Total cost per unit is the total variable cost per unit and fixed cost per unit total sum.
b.	Desired ROI $	48
Working Notes:
	Markup percentage on total unit cost is 40%
	Total per unit as computed above	120
	Markup percentage	40%
	Desired ROI $	48
	[ cost per unit x markup % = 120 x 40% =48]
c.	Target selling price	168
Working Notes:
	Target selling price is the price sum of markup and total cost per unit
	Total cost per unit	120
	Desired ROI per unit	48
	Target selling price	168
d.	Variable cost per unit	90	A
	Fixed cost per unit	40	B
	Total cost per unit	130	C=A+B
	Desired ROI $	52
	Target selling price	182
Working Notes:
	Assuming 60,000 units are produced and sold then as above calculation will changed.
	Variable cost per unit
	Direct materials	21
	Direct labor	46
	Variable manufacturing overhead	15
	Variable selling and administrative expenses	8
	Variable cost per unit	90
Notes:	fixed cost per unit is the total fixed cost divided by total units
	Fixed cost per unit	A	B
		Total costs	Volume
	Fixed manufacturing overhead	1200000	60000
	Fixed selling and administrative expenses	1200000	60000
			Fixed cost per unit
Notes:	Total cost per unit is the total variable cost per unit and fixed cost per unit total sum.
	Markup percentage on total unit cost is 40%
	Total per unit as computed above	130
	Markup percentage	40%
	Desired ROI $	52
	[ cost per unit x markup % = 130 x 40% =52]
	Target selling price is the price sum of markup and total cost per unit
	Total cost per unit	130
	Desired ROI per unit	52
	Target selling price	182
Please feel free to ask if anything about above solution in comment section of the question.