Question

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.)

Answer 1

Answer:

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 .