Lovell Computer Parts Inc. is in the process of setting a selling price on a new

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 .

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 $ 368,000

Explanation / Answer

The selling price should be $131.43 including the mark up.

Per Unit Volume Total Direct materials $ 46 41200 $18,95,200.00 Direct labor $ 26 $10,71,200.00 Variable manufacturing overhead $ 17 $7,00,400.00 Fixed manufacturing overhead $5,06,000.00 Variable selling and administrative expenses $ 15 $6,18,000.00 Fixed selling and administrative expenses $3,68,000.00 Total Cost for 41200 Units $51,58,800.00 Total per unit cost $125.21 Total Investment 1280300 20% ROI 256060 Mark Up cost per unit $6.22 SELLING PRICE $131.43

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