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. Per Unit Total Direct materials $46 Direct labor $22 Variable manufacturing overhead $21 Fixed manufacturing overhead $506,000 Variable selling and administrative expenses $21 Fixed selling and administrative expenses $322,000 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 23% return on investment (ROI) on invested assets of $1,000,000.

Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 23% on this new component. (Round markup percentage to 2 decimal places, e.g. 10.50%.) Markup percentage % Target selling price $ LINK TO TEXT LINK TO VIDEO

Assuming that the volume is 36,800 units, compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 23% on this new component. (Round answers to 2 decimal places, e.g. 10.50% or 10.50.) Markup percentage % Target selling price $

Answer 1

1
Direct materials	46
Direct labor	22
Variable manufacturing overhead	21
Fixed manufacturing overhead	11	=506000/46000
Variable selling and administrative expenses	21
Fixed selling and administrative expenses	7	=322000/46000
Total cost per unit	128
Desired ROI per unit	5	=(1000000*23%)/46000
Desired ROI per unit	5
Divide by Total cost per unit	128
Markup Percentage	3.91%
Desired ROI per unit	5
Add: Total cost per unit	128
Target Selling price	133

2
Direct materials	46.00
Direct labor	22.00
Variable manufacturing overhead	21.00
Fixed manufacturing overhead	13.75	=506000/36800
Variable selling and administrative expenses	21.00
Fixed selling and administrative expenses	8.75	=322000/36800
Total cost per unit	132.50
Desired ROI per unit	6.25	=(1000000*23%)/36800
Desired ROI per unit	6.25
Divide by Total cost per unit	132.50
Markup Percentage	4.72%
Desired ROI per unit	6.25
Add: Total cost per unit	132.50
Target Selling price	138.75