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Lovell Computer 50000

Price: $2.50


Lovell Computer Parts Inc. is in the process of setting a selling price on a new
component it has just designed and developed. The following cost estimates for this new
component have been provided by the accounting department for a budgeted volume of
50,000 units.

  Per Unit Total
Direct materials   50
Direct labor   26
Variable manufacturing overhead   20
Fixed manufacturing overhead   600,000
Variable selling and administrative expenses   19
Fixed selling and administrative expenses   400,000

Lovell Computer Parts management requests that the total cost per unit be used in cost-plus
pricing its products. On this particular product, management also directs that the target
price be set to provide a 25% return on investment (ROI) on invested assets of $1,000,000.

Instructions
(Round all calculations to two decimal places.)
(a) Compute the markup percentage and target selling price that will allow Lovell Computer
Parts to earn its desired ROI of 25% on this new component.
(b) Assuming that the volume is 40,000 units, compute the markup percentage and target
selling price that will allow Lovell Computer Parts to earn its desired ROI of 25% on
this new component.

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