Question
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)
| Markup Percentage | |
| Desired ROI per unit | $ 10.00 |
| ÷ Total cost per unit | $ 133.25 |
| Markup Percentage | 7.50% |
| Target Selling Price | |
| Total Cost per unit | $ 133.25 |
| Add: Desired ROI per unit | $ 10.00 |
| Target Selling Price | $ 143.25 |
Explanations :-
| Total Cost per unit | |
| Direct materials | $ 49.00 |
| Direct labor | $ 29.00 |
| Variable manufacturing overhead | $ 18.00 |
| Fixed manufacturing overhead ($565000/45200) | $ 12.50 |
| Variable selling & administration expense | $ 16.00 |
| Fixed selling & admn expense ($395500/45200) | $ 8.75 |
| Total Cost per unit | $ 133.25 |
| Desired ROI per unit | |
| Total Assets | $ 22,60,000 |
| X Desired ROI Rate | 20% |
| Desired ROI | $ 4,52,000 |
| ÷ Expected annual volume (units) | 45200 |
| Desired ROI per unit | $ 10.00 |
ekkarill92 answered 1 year agoRelated Solutions
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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
45,000 units.
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