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 $2\mathrm{.}1$ metres $ $10$ per metre $ $21\mathrm{.}00$

Direct labour $1\mathrm{.}0$ hours $34$ per hour $34\mathrm{.}00$

Manufacturing overhead $(1/6$ variable$)1\mathrm{.}0$ hours $18$ per hour $18\mathrm{.}00$

Total standard cost per suit $ $73\mathrm{.}00$

a$.$ The only variable selling and administrative costs will be $$4$ per suit for shipping. Fixed selling and administrative costs will be as follows $($per year$)$:

Salaries $ $42,500$

Advertising and other $190,000$

Total $ $232,500$

Since the company manufactures many products, it is felt that no more than $10,600$ hours of labour time per year can be devoted to production of the new suits.

An investment of $$560,000$ 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.

Manufacturing overhead costs are allocated to products on the basis of direct labour$-$hours.

Required:

$1.$ Assume that the company uses the absorption approach to cost$-$plus pricing.

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 $10,600$ hours of labour time.

b$.$ Using the markup you have computed, prepare a price quote sheet for a single rain suit. $($Round your answers to $2$ decimal places.$)$ 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:

a$.$ The only variable selling and administrative costs will be $$4$ per suit for shipping. Fixed selling and administrative costs will be as

follows $($per year$)$:

b$.$ Since the company manufactures many products, it is felt that no more than $10,600$ hours of labour time per year can be devoted to

production of the new suits.

c$.$ An investment of $$560,000$ 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.

Required:

Assume that the company uses the absorption approach to cost$-$plus pricing.