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.)

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.