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Problem 12A-4 Standard Costs; Absorption Costing and Total Variable Costing Approach to Setting Prices [L04] Gerber Clothing Inc. has designed a rain suit for outdoor

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Problem 12A-4 Standard Costs; Absorption Costing and Total Variable Costing Approach to Setting Prices [L04] 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 Direct labour Manufacturing overhead (1/6 variable) 36.00 20.00 33.00 2.4 metres $ 15 per metre 1.0 hours 1.0 hours 20 per hour 33 per hour Total standard cost per suit $ 89.00 a. The only variable selling and administrative costs will be $9 per suit for shipping. Fixed selling and administrative costs will be as follows (per year) Salaries Advertising and other 62,405 275,000 Total $337,405 c. Since the company manufactures many products, it is felt that no more than 11,900 hours of labour time per year can be devoted to production of the new suits d. An investment of $690,000 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 e. 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 11,900 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.) Direct materials Direct labour Manufacturing overhead Unit product cost Add markup of unit product cost Target selling price 2. Repeat requirements 1a and 1b 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.) Markup percentage for the total variable costing Target selling price

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