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
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 | $52 | ||||||
Direct labor | $21 | ||||||
Variable manufacturing overhead | $23 | ||||||
Fixed manufacturing overhead | $750,000 | ||||||
Variable selling and administrative expenses | $14 | ||||||
Fixed selling and administrative expenses | $350,000 |
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 $1,000,000.
Part 1
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 markup percentage to 2 decimal places, e.g. 10.50%.)
Markup percentage | % | ||
Target selling price | $ |
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Part 2
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 30% on this new component. (Round answers to 2 decimal places, e.g. 10.50% or 10.50.)
Markup percentage | % | ||
Target selling price | $ |
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