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 $2\mathrm{.}6$ metres $ $15$ per metre $ $39\mathrm{.}00$

Direct labour $1\mathrm{.}0$ hours $22$ per hour $22\mathrm{.}00$

Manufacturing overhead $(1/6$ variable$)1\mathrm{.}0$ hours $27$ per hour $27\mathrm{.}00$

Total standard cost per suit $ $88\mathrm{.}00$

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 $ $37,640$

Advertising and other $170,000$

Total $ $207,640$

Since the company manufactures many products, it is felt that no more than $11,700$ hours of labour time per year can be devoted to production of the new suits.

An investment of $$670,000$ 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 $11,700$ 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.$)$

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.

c$-2.$ Compute the company$$s ROI for the year on the suits, using the ROI formula. $($Do not round intermediate calculations.$)$

$2.$ Repeat requirements $1$a and $1$b above, assuming that the company uses the total variable costing approach to cost$-$plus pricing. $($Do not round intermediate calculations. Round your answers to $2$ decimal places.$)$

$3.$ This part of the question is not part of your Connect assignment.