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Gerber Glothing Inc. has designed a rain suit for outdoor enthusiasts that is about to be introduced on the market A standard cost card has
Gerber Glothing 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 Standard price Standard Quantity or hours or Rate Cost Direct materials Direct labour Manufacturing overhead (1/6 variable) 1.0 hours 24.00 per hour 2.5 metres $10.00 per metre 1.0 hours 25.00 28.00 24.00 28.00 per hour Total standard cost per suit s 77.00 a The only variable seling and administrative costs will be $4 per suit for shipping. Fixed selling and administrative costs will be as follows (per year) Salaries Advertising and other Aldlarning and other $205000 200,000 Total $245,000 b Since the company manufactures many products, it is felt that no more than 10,000 hours of labour time per year can be devoted to production of the new suits c. An investment of $500,000 will be necessary to carry inventories and accounts receivable and to urchase 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 10,000 hours of labour time Markup percentage
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