Exercise 226 Part Level Submission Almas Recording Studio re

Exercise 22-6 (Part Level Submission) Alma\'s Recording Studio rents studio time to musicians in 2-hour blocks. Each session includes the use of the studio facilities, a digital recording of the performance, and a professional music producer/mixer. Anticipated annual volume is 1,200 sessions. The company has invested $2,353,900 in the studio and expects a return on investment (ROI) of 20%. Budgeted costs for the coming year are as follows. Per Session $ 20.04 404.40 s 51.34 Total Direct materials (tapes, CDs, etc) Direct labor Variable overhead Fixed overhead Variable selling and administrative expenses Fixed selling and administrative expenses $ 1,142,928 42.33 $ 602,904

Solution

1.

Total variable cost per session = $518.11

Total fixed cost per session = $1745832 / 1200

= $1454.86 per session

Total Cost = 518.11 + 1454.86

= $1972.97

2.

Desired ROI = Investment * Expested return

= $2353900 * 20 %

= $470780

3.

Mark up percentage on total cost = 19.89 %

Total cost per session = $1972.97

Mark up on total cost = 1972.97 * 19.8 %

= $392.31

Total mark up = $392.31 * 1200

= 470780

4.

Target price per session = Total target cost + Expected mark up

= 1972.97 * 1.1988

= $2365.20