Lovell Computer Parts Inc. is in the process of setting a selling price on a new
ID: 2572948 • 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 47,000 units.
$47
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 24% return on investment (ROI) on invested assets of $1,263,900.
Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 24% on this new component. (Round answers to 2 decimal places, e.g. 10.50.)
Assuming that the volume is 40,500 units, compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 24% on this new component. (Round answers to 2 decimal places, e.g. 10.50.)
Per Unit Total Direct Materials$47
Direct Labor $21 Variable manufacturing overhead $18 Fixed manufacturing overhead $611,000 Variable selling and administrative expenses $15 Fixed selling and administrative expenses $235,000Explanation / Answer
Direct Materials 47 Direct Labor 21 Variable manufacturing overhead 18 Fixed manufacturing overhead 13 =611000/47000 Variable selling and administrative expenses 15 Fixed selling and administrative expenses 5 =235000/47000 Cost per unit 119 Required return = 1263900*24%= 303336 ROI per unit = 303336/47000= 6.45 Markup percentage =6.45/119= 5.42% Target selling price = 119+6.45 = 125.45 2 Direct Materials 47 Direct Labor 21 Variable manufacturing overhead 18 Fixed manufacturing overhead 15.09 =611000/40500 Variable selling and administrative expenses 15.00 Fixed selling and administrative expenses 5.80 =235000/40500 Cost per unit 121.89 Required return = 1263900*24%= 303336 ROI per unit = 303336/40500= 7.49 Markup percentage =7.49/121.89= 6.14% Target selling price = 121.89+7.49 = 129.38
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