Question

In: Accounting

Rita Corporation produces commercial fertilizer spreaders. The following information is available for Rita's anticipated annual volume...

Rita Corporation produces commercial fertilizer spreaders. The following information is available for Rita's anticipated annual volume of 600,000 units:

       Per Unit                                                                           Total

       Direct materials                                                                  $37

       Direct labour                                                                        43

       Variable manufacturing overhead                                        65

       Fixed manufacturing overhead                            $15,000,000

       Variable selling and administrative expenses                      73

       Fixed selling and administrative expenses             11,400,000

The company has a desired ROI of 20%. It has invested assets of $325,000,000.

Required:

Calculate each of the following:

  1. Total cost per unit.
  1. Desired ROI per unit.
  1. Mark-up percentage using total cost per unit.
  1. Target selling price.

Solutions

Expert Solution

a)
Direct materials    ($37*600000) $          2,22,00,000
Drect labour ($43*600000) $          2,58,00,000
Variable manufacturing overhead ($65*600000) $          3,90,00,000
Fixed manufacturing overhead $          1,50,00,000
Variable selling and administrative expenses ($73*600000) $          4,38,00,000
Fixed selling and administrative expenses $          1,14,00,000
Total Cost $        15,72,00,000
Total Cost per unit =$157200000/600000
=$262
b) ROI= $325000000*20%
=$65000000
Desired ROI per unit = $65000000/600000
=$108.33
c) Mark-up % = 108.3333/262
=41.35%
d) Target selling price = $262+108.33
=$370.33

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