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P8-1A Dewitt Corporation needs to set a target price

Price: $2.50


Dewitt 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   20
Direct labor   40
Variable manufacturing overhead   10
Fixed manufacturing overhead   1,440,000
Variable selling and administrative expenses   5
Fixed selling and administrative expenses   960,000

These costs are based on a budgeted volume of 80,000 units produced and sold each year.
Dewitt uses cost-plus pricing methods to set its target selling price. The markup percentage
on total unit cost is 30%.

Instructions
(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.
(c) Compute the target selling price for M14–M16.
(d) Compute variable cost per unit, fixed cost per unit, and total cost per unit assuming
that 60,000 M14–M16s are sold during the year.

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