Problem:
Roxy’s Recording Studio rents studio time to musicians in 2-hour blocks. Each session includes the use of the studio facilities, a digitally recorded tape of the performance, and a professional music producer/mixer. Anticipated annual volume is 1,000 sessions.
The company has invested $2,058,000 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 (tapes, CDs, etc) $ 20
Direct labor 400
Variable overhead 50
Fixed overhead $950,000
Variable selling and administrative expenses 40
Fixed selling and administrative expenses 500,000
Instructions:
(1) Determine the total cost per session.
(2) Determine the desired ROI per session.
(3) Calculate the mark-up percentage on the total cost per session.
(4) Calculate the target price per session.