Question
Gerber Clothing Inc. has designed a rain suit for outdoor enthusiasts that is about to be introduced on the market. A standard cost card
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: Direct materials Standard) Quantity or hours 2.5 metres Direct labour 1.0 hours Manufacturing overhead (1/6 variable) 1.0 hours Standard price or Rate $10 per metre 36 per hour! 24 per hour Standard Cost $25.00 36.00 24.00 $85.00 Total standard cost per suit 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 Advertising and other Total $ 68,000 302,000 $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. 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 10,800 hours of labour time. Markup percentage. % b. Using the markup you have computed, prepare a price quote sheet for a single rain suit. (Round your answers to 2 decimal places.)
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