P8-2BRobo Parts Inc. is in the process of setting a selling price on a new robotics compo- nent 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 100,000 units.
|
Per Unit |
Total |
||
|
Direct materials |
$30 |
||
|
Direct labor |
$20 |
||
|
Variable manufacturing overhead |
$17 |
||
|
Fixed manufacturing overhead |
$2,500,000 |
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|
Variable selling and administrative expenses |
$ 8 |
||
|
Fixed selling and administrative expenses |
$ 500,000 |
Robo’s 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 30% return on investment (ROI) on invested assets of $3,000,000.
Instructions
(Round all calculations to two decimal places.)
(a) Compute the markup percentage and target selling price that will allow Robo to earn its desired ROI of 30% on this new component.
(b) Assuming that the volume is 80,000 units, compute the markup percentage and target selling price that will allow Robo to earn its desired ROI of 30% on this new component.
