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Compute the markup percentage and target selling price

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Question - Vaughn 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

$48

 

Direct labor

$25

 

Variable manufacturing overhead

$22

 

Fixed manufacturing overhead

 

$700,000

Variable selling and administrative expenses

$15

 

Fixed selling and administrative expenses

 

$250,000

Vaughn 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 30% return on investment (ROI) on invested assets of $1,000,000.

Required -

1. Compute the markup percentage and target selling price that will allow Vaughn Computer Parts to earn its desired ROI of 30% on this new component.

2. Assuming that the volume is 40,000 units, compute the markup percentage and target selling price that will allow Vaughn Computer Parts to earn its desired ROI of 30% on this new component.

Reference no: EM132280474

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