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 1,230 sessions. The company has invested $2,348,685 in the studio and expects a return on investment (ROI) of 20%. Budgeted costs for the coming year are as follows.

		Per Session			Total
Direct materials (CDs, etc.)		$ 20
Direct labor		$415
Variable overhead		$ 50
Fixed overhead					$1,174,650
Variable selling and administrative expenses		$ 45
Fixed selling and administrative expenses					$645,750

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

ROI

$Type your answer here

per session

Calculate the markup percentage on the total cost per session.

Markup percentage

Type your answer here

%

per session

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

Target price

$Type your answer here

per session

Answer 1

Direct materials	20.00
Direct labor	415.00
Variable manufacturing overhead	50.00
Fixed manufacturing overhead	955.00	=1174650/1230
Variable selling and administrative expenses	45.00
Fixed selling and administrative expenses	525.00	=645750/1230
Total cost per unit	2010.00
ROI per session	381.90	=(2348685*20%)/1230
Desired ROI per session	381.90
Divide by Total cost per session	2010.00
Markup Percentage	19.00%	per session
Desired ROI per unit	381.90
Add: Total cost per unit	2010.00
Target price	2391.90	per session