Peachtree Doors, Inc. is in the process of setting a target price on its newly designed patio door. Cost data relating to the door at a budgeted volume of 5,000 units is as follows:

Per Unit Total

Direct materials $100

Direct labor 170

Variable manufacturing overhead 80

Fixed manufacturing overhead $750,000

Variable selling and administrative expenses 25

Fixed selling and administrative expenses 375,000

Peachtree uses cost-plus pricing that provides it with a 25% ROI on its patio door line. A total of $4,000,000 in assets is committed to production of the new door. Instructions

1. Compute each of the following under the absorption-cost approach:

a. Markup percentage needed to provide desired ROI.

b. Target price of the patio door.

2. Compute each of the following under the variable-cost approach:

a. Markup percentage needed to provide desired ROI.

b. Target price of the patio door.