Lovell Computer Parts Inc. is in the process of setting a selling price on a new
ID: 2515906 • Letter: L
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 cost estimates for this new component have been provided by the accounting department for a budgeted volume of 46,000 units.
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 20 % return on investment (ROI) on invested assets of $ 1,280,300 .
A) Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 20 % on this new component. (Round answers to 2 decimal places, e.g. 10.50.)
Per Unit Total Direct materials $ 46 Direct labor $ 26 Variable manufacturing overhead $ 17 Fixed manufacturing overhead $ 506,000 Variable selling and administrative expenses $ 15 Fixed selling and administrative expenses $ 368,000Explanation / Answer
Answer
Invested Assets
$1,280,300
ROI at 20% [1280300 x 20%]
$256,060
Working column
Per Unit
Total for 46000 units
Direct materials
46
$2116000
Direct labor
26
$1196000
Variable manufacturing overhead
17
$782000
Fixed manufacturing overhead
$506000
Variable selling and administrative expenses
15
$690000
Fixed selling and administrative expenses
$368000
A
TOTAL COST
$5,658,000
B=A/46000
Total cost per unit
$123
C [calculated above]
Desired profit as per ROI
$256,060
D=A+C
Sales Revenue [total]
$5,914,060
E
Total Unit
46000
F=D/E
Target Sale price per unit
$128.57
G=(F-B)/B
Mark Up Percentage
4.53%
Invested Assets
$1,280,300
ROI at 20% [1280300 x 20%]
$256,060
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