Question

Alma’s Recording Studio rents studio time to musicians in 2-hour blocks. Each session includes the use of the studio facilities, a digital recording of the performance, and a professional music producer/mixer. Anticipated annual volume is 1,160 sessions. The company has invested $2,345,000 in the studio and expects a return on investment (ROI) of 18%. Budgeted costs for the coming year are as follows.

		Per Session			Total
Direct materials (CDs, etc.)		$ 20.03
Direct labor		$413.00
Variable overhead		$ 54.00
Fixed overhead					$1,106,640
Variable selling and administrative expenses		$ 43.00
Fixed selling and administrative expenses					$585,800

Determine the total cost per session. (Round answer to 2 decimal places, e.g. 10.50.)

Total cost

$

per session

Calculate the markup percentage on the total cost per session. (Round answer to 2 decimal places, e.g. 10.50.)

Markup percentage

%

per session

Calculate the target price per session. (Round answer to 2 decimal places, e.g. 10.50.)

Target price

$

per session

Answer 1

1
Direct materials	20.03
Direct labor	413.00
Variable manufacturing overhead	54.00
Fixed overhead	954.00	=1106640/1160
Variable selling and administrative expenses	43.00
Fixed selling and administrative expenses	505.00	=585800/1160
Total cost	1989.03	per session
2
Desired ROI per session	363.88	=(2345000*18%)/1160
Desired ROI per unit	363.88
Divide by Total cost per unit	1989.03
Markup Percentage	18.29%	per session
3
Desired ROI per unit	363.88
Add: Total cost per unit	1989.03
Target price per session	2352.91	or 2352.82