Joey'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 1,000 sessions. The company has invested $2,000,000 in the studio and expects a return on investment (ROI) of 16.5%. Budgeted costs for the coming year are as follows.
Per Session Total
Direct materials (tapes, CDs, etc) $60
Direct labor $400
Variable overhead $50
Fixed overhead $850,000
Variable selling and administrative expenses $40
Fixed selling and administrative expenses $800,000
Instructions:
(a) Determine the total cost per session.
(b) Determine the desired ROI per session.
(c) Calculate the mark-up percentage on the total cost per session.
(d) Calculate the target price per session.