Question

Ahmed Corporation makes a mechanical stuffed alligator. The following information is available for Ahmed Corporation’s expected annual volume of 500,000 units:

		Per Unit		Total
	Direct materials	$13
	Direct labour	6
	Variable manufacturing overhead	14
	Fixed manufacturing overhead			$350,000
	Variable selling and administrative expenses	6
	Fixed selling and administrative expenses			150,000

The company has a desired ROI of 30%. It has invested assets of $23,700,000.

1)Calculate the total cost per unit. (Round answer to 2 decimal places, e.g. 15.25.)

2)Calculate the desired ROI per unit. (Round answer to 2 decimal places, e.g. 15.25.)

3)Calculate the markup percentage using the total cost per unit. (Round answer to 2 decimal places, e.g. 15.25%.)

4)Calculate the target selling price. (Round answer to 2 decimal places, e.g. 15.25.)

Answer 1

1	Total Cost per unit
	Direct materials	$           13.00
	Direct labor	$              6.00
	Variable manufacturing overhead	$           14.00
	Fixed manufacturing overhead ($350000/500000)	$              0.70
	Variable selling & administration expense	$              6.00
	Fixed selling & admn expense ($150000/500000)	$              0.30
	Total Cost per unit	$           40.00
2	Desired ROI per unit
	Total Assets	$ 2,37,00,000
	X Desired ROI Rate	30%
	Desired ROI	$    71,10,000
	÷ Expected annual volume (units)	500000
	Desired ROI per unit	$           14.22
3	Markup Percentage
	Desired ROI per unit	$           14.22
	÷ Total cost per unit	$           40.00
	Markup Percentage	35.55%
4	Target Selling Price
	Total Cost per unit	$           40.00
	Add: Desired ROI per unit	$           14.22
	Target Selling Price	$           54.22