Empire Corporation needs to set a target price for its newly designed product R2’D2.

The following data relate to this new product.

Per Unit Total

Direct materials $8

Direct labor $15

Variable manufacturing overhead $7

Fixed manufacturing overhead $2,000,000

Variable selling and administrative expenses $6

Fixed selling and administrative expenses $1,000,000

These costs are based on a budgeted volume of 100,000 units produced and sold each year. Empire

uses cost-plus pricing methods to set its target selling price. The markup on total unit cost

is 35%.

Instructions

(a) Compute the total variable cost per unit, total fixed cost per unit, and total cost per unit for

R2’D2.

(b) Compute the desired ROI per unit for R2’D2.

(c)Compute the target selling price for R2’D2.

(d)Compute variable cost per unit, fixed cost per unit, and total cost per unit assuming that

80,000 R2’D2s are sold during the year.