Question

Problem 21-01A

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		$22
Direct labor		$38
Variable manufacturing overhead		$11
Fixed manufacturing overhead					$1,215,000
Variable selling and administrative expenses		$ 9
Fixed selling and administrative expenses					$ 1,215,000

These costs are based on a budgeted volume of 81,000 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%.

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

Variable cost per unit		$enter a dollar amount
Fixed cost per unit		enter a dollar amount
Total cost per unit		$enter a total of the two previous amounts

Compute the desired ROI per unit for M14–M16.

Desired ROI

$enter the desired ROI per unit in dollars

per unit

Compute the target selling price for M14–M16.

Target selling price per unit

$enter the target selling price per unit in dollars

Compute variable cost per unit, fixed cost per unit, and total cost per unit assuming that 60,750 M14–M16s are produced and sold during the year.

Variable cost per unit		$enter a dollar amount
Fixed cost per unit		enter a dollar amount
Total cost per unit		$enter a total of the two previous amounts

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Answer 1

Total Variable Cost Per Unit:-

Direct Materials 22

Direct Labor 38

Variable Overhead 11

Variable Selling 9

Total Cost Per Unit 80

Fixed Cost Per Unit:-

Total Fixed Cost:-

Fixed Manufacturing 1,215,000

Fixed Selling 1,215,000

Total Fixed Cost 2,430,000

Number of Units Produced 81,000

Fixed Cost per Unit = 2,430,000/81,000

= 30 per Unit

Total Per Unit Cost = 80+30

= 110 per Unit

ROI per Unit = 110*40%

= 44 per Unit

Selling Price per Unit = 110+40%

= 154 per Unit

Calculation of Variable cost per unit, Fixed Cost Per unit & total cost per unit if production is 60,750 units.

Variable cost per unit will not change as the production changes, so the per unit variable cost is

Variable Cost per Unit 80

Fixed Cost per Unit:-

2,430,000/60,750

= 40 per unit

Total Cost Per Unit = 80+40

= 120 per unit