PROBLEM A-6 Miesing Date: Markup Computations Return on investment (Ron: Pricing South Sea Products, Inc. has designed a new subsurd to replace its old sortbound line Besale of the unique design of the new surfboard, the company anticipates that it will be able to sell all the bounds that it can produce. On this buses the following incomplete budgeted income statement for the first year of activity is available: 5 100 000 Sales (?boards at 7 per board) Cost of goods sold boards at per bort Gross margin Selling and administrave expenses Net operating income 130.000 $ Additional information on the new surfboard follows: An investment of $1,500,000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment. The company's required rate of return is 18% on all investments b. A partially completed standard cost card for the new surfboard follows: Standard Ouantity or Hous Standard Price of Rate Standard Cost 527 Direct materials Direct Inbor Manufacturing overhead Total standard cost per surfboard. 6 feet 2 hours 7 hours $450 per loot 7 per hour 7 per hour 51 C. The company will employ 20 workers to make the new surfboards. Each will work a 40-hout week. 50 weeks a year Other information relating to production and costs follows: d. Variable manufacturing overhead cost per board) Variable selling expense (per board) Fixed manufacturing overhead cast (totan Fored selling and administrative expense total Number of boards produced and sold (per year) 55 $50 5600 000 52 2 c Overhead costs are allocated to production on the basis of direct labor-hours Required: 1 Complete the standard cost card for a single surfboard. 2. Assume that the company uses the absorption casting approach to cost-plus pricing. a Compute the markup that the company needs on the surfboards to achieve an 18S return on investment (ROI) b Using the markup you have computed, prepare a price quotation sheet for a single saboard Assume, as stated that the company is able to sell all of the surfboards that it can produce. Complete the income statement for the first year of activity, and then compute the company's ROI for the year. C Assuming that direct labor is a variable cost, how many units would the company have to sell at the price you computed in (2) above to achieve the 18% ROI? How many units would have to be sold to just break even