Chapter 8, Problem 8.1AP

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	$25
Direct labor	$40
Variable manufacturing overhead	$10
Fixed manufacturing overhead		$1,440,000
Variable selling and administrative expenses	$ 5
Fixed selling and administrative expenses		$ 960,000

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 40%.

Instructions

(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.

(c) Compute the target selling price for M14-M16.

(d) Compute variable cost per unit, fixed cost per unit, and total cost per unit assuming that 60,000 M14-M16s are produced and sold during the year.