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Alma's Recording Studio rents studio time to musicians in 2-hour blocks
Alma's Recording Studio rents studio time to musicians in 2-hour blocks. Each session includes the use of the studio facilities, a digital recording of the performance, and a professional music producer/mixer. Anticipated annual volume is 1,040 sessions. The company has invested $2,344,160 in the studio and expects a return on investment (ROI) of 20%. Budgeted costs for the coming year are as follows.
Per Session
Total
Direct materials (CDs, etc.) $ 20 Direct labor $410 Variable overhead $ 50 Fixed overhead Variable selling and administrative expenses $ 35 Fixed selling and administrative expenses
$988,000
$514,800
Determine the total cost per session.
Total cost$ per session Determine the desired ROI per session. (Round answer to 2 decimal places, e.g. 10.50.)
ROI $
per session
Calculate the markup percentage on the total cost per session. Markup percentage % per session Calculate the target price per session. (Round answer to 2 decimal places, e.g. 10.50.) Target price $ per session
Expert Solution
Computation of Total Cost per Session:
| Per Session | |
| Direct Materials | 20 |
| Direct Labor | 410 |
| Variable Overhead | 50 |
| Variable Selling and Administrative Expenses | 35 |
| Fixed Overhead (988,000/1,040) | 950 |
| Fixed Selling and Administrative Expenses (514,800/1,040) | 495 |
|
Total Cost Per Session |
$1,960 |
Computation of Desired ROI Per Session:
Desired ROI Per Session = (Investment Amount*ROI Percentage)/Number of Sessions
= (2,344,160*20%)/1,040
Desired ROI Per Session = $450.80
Computation of Mark-Up Percentage on Total Cost Per Session:
Mark-Up Percentage on Total Cost Per Session = Desired ROI Per Session/Total Cost Per Session*100
= 450.80/1,960*100
Mark-Up Percentage on Total Cost Per Session = 23%
Computation of Target Price Per Session:
Target Price Per Session = Total Cost Per Session + Total Cost Per Session*Mark-Up Percentage on Total Cost Per Session
= 1,960 + 1,960*23%
Target Price Per Session = $2,410.80
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