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P8-1B Harrington Corporation

Price: $2.50


Harrington Corporation needs to set a target price for its newly designed product
R2–D2. The following data relate to this new product.

  Per Unit Total
Direct materials   8
Direct labor   14
Variable manufacturing overhead   7
Fixed manufacturing overhead   2,000,000
Variable selling and administrative expenses   6
Fixed selling and administrative expenses   1,200,000
These costs are based on a budgeted volume of 100,000 units produced and sold each year.
Harrington uses cost-plus pricing methods to set its target selling price. The markup 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 R2–D2.
(b) Compute the desired ROI per unit for R2–D2.
(c) Compute the target selling price for R2–D2.
(d) Compute variable cost per unit, fixed cost per unit, and total cost per unit assuming
that 80,000 R2–D2s are sold during the year.

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