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BRIEF EXERCISE 8

BRIEF EXERCISE 8 - BRIEF EXERCISE 8-1 In order to obtain a...

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BRIEF EXERCISE 8-1 In order to obtain a profit margin of \$14 per drive, Russell must set its target cost at \$31 per drive (\$45 – \$14). It will then need to form a design team that will design a product that will meet quality specifications without exceeding the target cost. BRIEF EXERCISE 8-2 Direct materials .................................................................................... \$12 Direct labor ............................................................................................ 8 Variable manufacturing overhead ...................................................... 6 Fixed manufacturing overhead ........................................................... 14 Variable selling and administrative expenses .................................. 4 Fixed selling and administrative expenses ....................................... 12 Total unit cost ............................................................................... \$56 Total unit cost + (Markup percentage X Total unit cost) = Target selling price \$56 + (32% X \$56) = \$73.92 BRIEF EXERCISE 8-3 ROI per unit = (Total investment X Desired ROI percentage) Number of units = (\$10,000,000 X 18%) = \$36.00 50,000

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BRIEF EXERCISE 8-4 The markup percentage would be: \$30 = 18.52% \$36 + \$24 + \$18 + \$42 + \$14 + \$28
BRIEF EXERCISE 8-5 The markup percentage is equal to Desired ROI per unit divided by total unit cost. The desired ROI per unit is computed as follows: Desired ROI per unit = \$1,500,000 X 20% =\$30 10,000 units The total unit cost is computed as follows: Total unit cost = \$1,100,000 + \$100,000 =\$120 10,000 units

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