Wilderness Products, Inc., has designed a self-inflating sleeping pad for use by backpackers and campers. The following information is available about the new product:

a.	An investment of $1,350,000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment needed in the manufacturing process. The companys required rate of return is 24% on all investments.
b.	A standard cost card has been prepared for the sleeping pad, as shown below:

	Standard Quantity or Hours	Standard Price or Rate		Standard Cost
Direct materials	4.0 yards	$	2.70 per yard	$	10.80
Direct labor	2.4 hours	$	8.00 per hour		19.20
Manufacturing overhead (15 variable)	2.4 hours	$	12.50 per hour		30.00
Total standard cost per pad				$	60.00

c.	The only variable selling and administrative expense will be a sales commission of $9 per pad. Fixed selling and administrative expenses will be (per year):

Salaries	$	82,000
Warehouse rent		50,000
Advertising and other		600,000
Total	$	732,000

d.	Because the company manufactures many products, no more than 38,400 direct labor-hours per year can be devoted to production of the new sleeping pads.

e.	Manufacturing overhead costs are allocated to products on the basis of direct labor-hours.

rev: 01_06_2015_QC_CS-3366

1.

value: 5.00 points

Required information

Required:
1.	Assume that the company uses the absorption approach to cost-plus pricing.

a-1.	Compute the selling and administrative expenses.

a-2.	Compute the markup that the company needs on the pads to achieve a 24% ROI if it sells all of the pads it can produce using 38,400 hours of labor time.

b.	Using the markup you have computed, prepare a price quotation sheet for a single sleeping pad.(Round your answers to 2 decimal places.)

c-1.	Assume that the company is able to sell all of the pads that it can produce. Prepare an income statement for the first year of activity.

c-2.	Assume that the company is able to sell all of the pads that it can produce. Compute the company's ROI for the year on the pads.

Garrison 15e Recheck 2015-01-19, 02_04_2015_QC_CS-6665

References

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Expanded tableDifficulty: 2 MediumLearning Objective: A-02 Compute the selling price of a product using the absorption costing approach.

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2.

value: 5.00 points

Required information

2.	After marketing the sleeping pads for several years, the company is experiencing a falloff in demand due to an economic recession. A large retail outlet will make a bulk purchase of pads if its label is sewn in and if an acceptable price can be worked out. What is the minimum acceptable price for this special order? (Round your answers to 2 decimal places.)