Question 2

Joey'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 1,000 sessions. The company has invested $2,000,000 in the studio and expects a return on investment (ROI) of 16.5%. Budgeted costs for the coming year are as follows.

		Per Session			Total
Direct materials (tapes, CDs, etc)		$60
Direct labor		$400
Variable overhead		$50
Fixed overhead					$850,000
Variable selling and administrative expenses		$40
Fixed selling and administrative expenses					$800,000

Determine the total cost per session.

Total cost per session:

$

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Determine the desired ROI per session.

Desired ROI per session

$

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Calculate the mark-up percentage on the total cost per session.

Mark-up percentage on the total cost per session

%

Calculate the target price per session.

Target price per session

$