Question

National Corporation needs to set a target price for its newly designed product M14–M16. The following data relate to this new product.

		Per Unit			Total
Direct materials		$20
Direct labor		$39
Variable manufacturing overhead		$10
Fixed manufacturing overhead					$1,501,000
Variable selling and administrative expenses		$ 1
Fixed selling and administrative expenses					$ 869,000

These costs are based on a budgeted volume of 79,000 units produced and sold each year. National uses cost-plus pricing methods to set its target selling price. The markup percentage on total unit cost is 40%.

Compute the total variable cost per unit, total fixed cost per unit, and total cost per unit for M14–M16.

Variable cost per unit
Fixed cost per unit
Total cost per unit

Compute the desired ROI per unit for M14–M16.

Desired ROI

$enter the desired ROI per unit in dollars

per unit

Compute the target selling price for M14–M16.

Target selling price per unit

$enter the target selling price per unit in dollars

Compute variable cost per unit, fixed cost per unit, and total cost per unit assuming that 59,250 M14–M16s are produced and sold during the year.

Variable cost per unit
Fixed cost per unit
Total cost per unit

Answer 1

1.

Variable cost per unit:

Direct material	$20
Direct labor	39
Variable manufacturing overhead	10
Variable selling and administrative expenses	1
Variable cost per unit	$70

Fixed cost per unit:

Fixed manufacturing overhead	$1,501,000
Fixed selling and administrative expenses	869,000
Total fixed costs	$2,370,000
Units produced and sold	79,000
Fixed cost per unit	$30

Total cost per unit:

'

Variable cost per unit	$70
Fixed cost per unit	30
Total cost per unit	$100

2.

Desired ROI = Total cost per unit * Markup percentage

Desired ROI = $100 * 40% = $40 per unit

3.

Target selling price per unit = Total cost per unit + Desired ROI

Target selling price per unit = $100 + 40 = $140 per unit

4.

Variable cost per unit = $70 per unit

Fixed cost per unit:

Fixed manufacturing overhead	$1,501,000
Fixed selling and administrative expenses	869,000
Total fixed costs	$2,370,000
Units produced and sold	59,250
Fixed cost per unit	$40

Total cost per unit:

Variable cost per unit	$70
Fixed cost per unit	40
Total cost per unit	$110