Problem 8-2A Lovell Computer Parts Inc. is in the process of setting a selling p
ID: 2571125 • Letter: P
Question
Problem 8-2A 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 55,000 units. Per Total Unit $54 $22 $23 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $S50,000 $13 $275,000 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 21% return on investment (ROI) on invested assets of $1,115,400 Your answer is partially correct. Try again. Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 21% on this new component. (Round answers to 2 decimal places, e.g. 10.50.) Markup percentage Target selling price 3.241196 131.26 LINK TO TEXT VIDEO: SIMILAR PROBLEM Your answer is partially correct. Try again. Assuming that the volume is 36,300 units, compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 21% on this new component. (Round answers to 2 decimal places, e.g. 10.50.) Markup percentage Target selling price 4.5 % 141.18Explanation / Answer
Markup = Selling price - Cost
Cost per unit = $54 + $22 + $23 + $13 + [($550000 + 275000)/55000] = $127
Markup = $131.26 - $127 = $4.26
Markup % = $4.26/ $127 * 100 = 3.35%
If 36300 units are sold,
Cost per unit = $54 + $22 + $23 + $13 + [($550000 + 275000)/36300] = $134.73
Markup = $141.18 - $134.73 = $6.45
Markup % = $6.45/ $141.18 * 100 = 4.79%