Question

National Corporation needs to set a target price for its newly designed product M14–M16. The following data relate to this new product.

		Per Unit			Total
Direct materials		$27
Direct labor		$38
Variable manufacturing overhead		$11
Fixed manufacturing overhead					$1,440,000
Variable selling and administrative expenses		$ 4
Fixed selling and administrative expenses					$ 960,000

These costs are based on a budgeted volume of 80,000 units produced and sold each year. National uses cost-plus pricing methods to set its target selling price. The markup percentage on total unit cost is 40%.

1.Compute the total variable cost per unit, total fixed cost per unit, and total cost per unit for M14–M16.

2. Compute the desired ROI per unit for M14-M16

3. Compute the target selling price for M14-M16

Answer 1

Part-1 Computation of Variable cost , Fixed Cost , Total Cost per Unit
Variable Cost per Unit
Direct Material	$27.00
Direct Labour	$38.00
Variable Manufacturign Overhead	$11.00
Variable Selling & Administrative Expense	$4.00
Total Variable cost		$80.00
Fixed Cost per Unit
Fixed Manufacturing Overhead (1440000/80000)	$18.00
Fixed Selling & Administrative Expense	$12.00
Total Fixed Cost		$30.00
Total Cost per Unit		$110.00

Part-2: Desired ROI= Profit/ Selling Price

=44/154=28.57%

Part-3
Computation of Target Selling Price
Cost per Unit	$110.00
Markup Percentage @ 40%	$44.00
Target Selling Price	$154.00