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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
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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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