Reference no: EM132946248
Gerber Clothing Inc. has designed a rain suit for outdoor enthusiasts that is about to be introduced on the market. A standard cost card has been prepared for the new suit, as follows:
Standard Quantity or hours Standard price or Rate Standard Cost
Direct materials 2.5 metres $ 10 per metre $ 25.00
Direct labour 1.0 hours 36 per hour 36.00
Manufacturing overhead (1/6 variable) 1.0 hours 24 per hour 24.00 Total standard cost per suit $ 85.00
a. The only variable selling and administrative costs will be $6 per suit for shipping. Fixed selling and administrative costs will be as follows (per year):
Salaries $ 68,000
Advertising and other 302,000
Total $ 370,000
b Since the company manufactures many products, it is felt that no more than 10,800 hours of labour time per year can be devoted to production of the new suits.
c. An investment of $580,000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment. The company wants a 20% ROI in new product lines.
d. Manufacturing overhead costs are allocated to products on the basis of direct labour-hours.
1. Assume that the company uses the absorption approach to cost-plus pricing.
Problem a. Compute the markup that the company needs on the rain suits to achieve a 20% ROI if it sells all of the suits it can produce using 10,800 hours of labour time.
Problem b. Using the markup you have computed, prepare a price quote sheet for a single rain suit. (Round your answers to 2 decimal places.)
Problem c-1. Assume that the company is able to sell all of the rain suits that it can produce. Prepare an income statement for the first year of activity.
Problem c-2. Compute the company's ROI for the year on the suits, using the ROI formula. (Do not round intermediate calculations.)