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21 August, 20:22

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 $23

Direct labor $45

Variable manufacturing overhead $12

Fixed manufacturing overhead $1,296,000

Variable selling and administrative expenses $ 10

Fixed selling and administrative expenses $ 1,134,000

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 35%.

Required:

a) Compute the total variable cost per unit, total fixed cost per unit, and total cost per unit for M14-M16.

b) Compute the desired ROI per unit for M14-M16. (Round answer to 2 decimal places, e. g. 10.50.)

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  1. 21 August, 23:44
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    Total Variable Costs per unit $ 90

    Total Fixed Cost per unit $ 30.375

    Total Unit Costs = $ 120.375

    The investor will receive a benefit of $ 1.13 per unit.

    Explanation:

    National Corporation

    M14-M16

    Per Unit Total

    Direct materials $23 1840,000

    Direct labor $45 3600,000

    Variable manufacturing overhead $12 960,000

    Fixed manufacturing overhead $1,296,000

    Variable selling & Admin. expenses $ 10 800,000

    Fixed selling and administrative expenses $ 1,134,000

    Total Variable Costs per unit $ 90

    Direct materials $23

    Direct labor $45

    Variable manufacturing overhead $12

    Variable selling & Admin. expenses $ 10

    Total Fixed Cost per unit $ 30.375

    Fixed manufacturing overhead = $1,296,000 / 80,000 = $ 16.2

    Fixed selling and administrative expenses = $ 1,134,000 / 80,000 = $ 14.175

    Total Unit Costs = Total Variable Costs per unit + Total Fixed Cost per unit

    =$ 90 + $ 30.375 = $ 120.375

    Return on investment measures the benefit an investor will receive in relation to their investment cost.

    Desired ROI per unit + Fixed Cost = Mark Up Percentage * Variable Cost Per Unit

    Putting values in the above

    Desired ROI per unit + $ 30.375 = 35 % * $ 90

    Desired ROI per unit = 31.5 - 30.375

    Desired ROI per unit = $ 1.125 = $ 1.13

    The investor will receive a benefit of $ 1.13 per unit.
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