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Lafleur Corporation needs to set a target price for its newly designed product, M14-M16
Lafleur Corporation needs to set a target price for its newly designed product, M14-M16. The following data relate to it:
| Per Unit | Total | ||||
| Direct materials | $15 | ||||
| Direct labour | 18 | ||||
| Variable manufacturing overhead | 13 | ||||
| Fixed manufacturing overhead | $4,004,000 | ||||
| Variable selling and administrative expenses | 3 | ||||
| Fixed selling and administrative expenses | 2,574,000 |
These costs are based on a budgeted volume of 286,000 units produced and sold each year. Lafleur uses cost-plus pricing to set its target selling price. The markup on the total unit cost is 40%.
Calculate the total variable cost per unit, total fixed cost per unit, and total cost per unit for M14-M16.
| Total variable cost per unit | $ ? | |
| Total fixed costs per unit | $ ? | |
| Total cost per unit | $ ? |
Calculate the desired markup per unit for M14-M16. (Round answer to 2 decimal places, e.g. 15.25.)
| Markup per unit | $? |
Calculate the target selling price for M14-M16. (Round answer to 2 decimal places, e.g. 15.25.)
| Target selling price | $? |
Expert Solution
SOLUTION:
1. Total variable cost per unit, Total fixed cost per unit, and Total cost per unit for M14-M16:
| Particulars | Amount |
| Direct Materials | $15 |
| + Direct Labor | $ 18 |
| + Variable Manufacturing Overhead | $ 13 |
| + Variable Selling and Administrative Expenses | $ 3 |
| = Total Variable Cost per Unit | $ 49 |
| Fixed Manufacturing Overhead | $ 4004000 |
| + Fixed Selling and Administrative Expenses | $ 2574000 |
| = Total Fixed Costs (A) | $ 6578000 |
| Units Produced (B) | 286000 |
| Total Fixed Cost per Unit (A/B) | $ 23 |
| Total Fixed Cost per Unit (A/B) | $ 23 |
| Add: Total Variable Cost per Unit | $ 49 |
| Total Cost per Unit | $ 72 |
2. Desired markup per unit for M14-M16:
Markup per Unit = Total Unit Cost * 40%
Markup per Unit = $ 72 * 40%
Markup per Unit = $ 28.80
3. Target selling price for M14-M16:
Target Selling Price = Total Cost per Unit + Markup
Target Selling Price = $ 72 + $ 28.80
Target Selling Price = $ 100.80
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