Problem M2 Lovell Computer Parts Inc is in the process of se

Problem M-2 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. Per Unit Total Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $55 $28 $20 $650,000 $13 $300,000 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 27% return on investment (ROI) on invested assets of $1,245,600. Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn it I desired ROI of 27% on this new component. (Round answers to 2 decimal places, e.g. 10.50.) Markup percentage Target selling prices

Solution

Invested assets $12,45,600 ROI @ 27% on Invested assets 336312 Budgeted volume 50000 units 38500 units Direct materials 55 2750000 2117500 Direct labour 28 1400000 1078000 Variable manfacturing OH 20 1000000 770000 Variable selling and admin OH 13 650000 500500 Fixed manfacturing Oh 650000 650000 650000 Fixed selling and admin OH 300000 300000 300000 Total cost 6750000 5416000 (+) Profit 336312 336312 Sales 7086312 5752312 Mark up % = Gross profit / Unit cost 4.98% 6.21% Target selling price = Sales/No of units(in $) 141.73 149.41