In: Accounting

# Bolus Computer Parts Ltd. is setting a selling price on a new component it has just...

Bolus Computer Parts Ltd. is 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 56,500 units:

 Per Unit Total Direct materials $49 Direct labour 29 Variable manufacturing overhead 18 Fixed manufacturing overhead$565,000 Variable selling and administrative expenses 16 Fixed selling and administrative expenses 395,500

Bolus Computer Parts’ management requests that the total cost per unit be used in the cost-plus pricing of products. On this particular product, management also directs that the target price be set to provide a 20% return on investment on invested assets of $2,260,000. 1)Calculate the markup percentage and target selling price that will allow Bolus Computer Parts to earn its desired ROI of 20% on this new component. (Round mark-up percentage to 2 decimal places, e.g. 15.25% and target selling price to 0 decimal places, e.g. 125.) 2)Assuming that the volume is 45,200 units, calculate the markup percentage and target selling price that will allow Bolus Computer Parts to earn its desired ROI of 20% on this new component. (Round answers to 2 decimal places, e.g. 15.25% or 15.25.) ## Solutions ##### Expert Solution (1)  Markup Percentage Desired ROI per unit$              8.00 ÷ Total cost per unit $129.00 Markup Percentage 6.20% Target Selling Price Total Cost per unit$         129.00 Add: Desired ROI per unit $8.00 Target Selling Price$         137.00

Explanations :-

 Total Cost per unit Direct materials $49.00 Direct labor$           29.00 Variable manufacturing overhead $18.00 Fixed manufacturing overhead ($565000/56500) $10.00 Variable selling & administration expense$           16.00 Fixed selling & admn expense ($395500/56500)$              7.00 Total Cost per unit $129.00 Desired ROI per unit Total Assets$    22,60,000 X Desired ROI Rate 20% Desired ROI $4,52,000 ÷ Expected annual volume (units) 56500 Desired ROI per unit$              8.00

(2)