Markup percentage and target selling price
Not what you're looking for?
Bolus 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 $25
Variable manufacturing overhead $20
Fixed manufacturing overhead $600,000
Variable selling and administrative expenses $18
Fixed selling and administrative expenses $400,000
Bolus 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 $1,200,000.
Hint:
Use cost-plus pricing to determine various amounts.
Instructions
(Round all calculations to two decimal places.)
(a) Compute the markup percentage and target selling price that will allow Bolus 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 Bolus Computer Parts to earn its desired ROI of 25% on this new component.
Purchase this Solution
Solution Summary
The solution explains how to calculate the markup percentage and target selling price
Solution Preview
(a) The ROI amount is 1,200,000 X 25% = 300,000
On a per unit basis, profit needed = 300,000/50,000 units = $6
Total variable cost per unit = 50=25+20+18 = ...
Purchase this Solution
Free BrainMass Quizzes
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.