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Tudge Pty Ltd (Tudge) manufactures construction machinery according to customer specifications. The company operated at 75 per cent of practical capacity during the year just

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Tudge Pty Ltd (Tudge) manufactures construction machinery according to customer specifications. The company operated at 75 per cent of practical capacity during the year just ended, with the following results (in thousands):

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Sales revenue 8.000 Less: Sales commissions (10%) 800 Net sales 7,200 Expenses: Direct material 2.200 Direct labor 2.400 Manufacturing overhead-variable 720 Manufacturing overhead-fixed 500 Corporate administration-fixed 400 Total costs 6.220 Income before taxes 980 Income taxes (25%) 245 Net income 735Estimated direct material 9.000 Estimated direct labor 18.000 Estimated total manufacturing overhead at 50% of direct labor (variable overhead 9,000 maintains a same percentage of direct labor cost as the year just ended) Estimated corporate overhead at 10% of direct labor 1,800 Estimated total costs excluding sales commissions 37.800 Add 25% income taxes 9.450 Suggested price (with profit) before sales commissions 47.250 Suggested total price: $47,250 + 0.9 to adjust for 10% commission 52.500

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