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 An investment of $1,050,000 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 12 on all investments 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 6 yards $ 2 10 per yard $ 12 60 Direct labor 4 hours $ 6 70 per hour 26 80 Manufacturing overhead (20 variable) 4 hours $ 10 90 per hour 43 60 Total standard cost per pad $ 83 00 The only variable selling and administrative expense will be a sales commission of $7 per pad The fixed selling and administrative expenses will be $1,540,800 per year Because the company manufactures many products, no more than 72,000 direct labor hours per year can be devoted to production of the new sleeping pads Manufacturing overhead costs are allocated to products on the basis of direct labor hours Required 1 Assume that the company uses the absorption approach to cost plus pricing a Compute the markup percentage that the company needs on the pads to achieve a 12 return on investment (ROI) if it sells all of the pads it can produce b What selling price per sleeping pad will the company establish if it uses a markup percentage on absorption cost (Round intermediate calculations and final answer to 2 decimal places ) c Assume that the company is able to sell all of the pads that it can produce Compute the companys ROI based on the first year of activity 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 answer to 2 decimal places )

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 11, 2024

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: An

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:

An investment of $1,050,000 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 12% on all investments.
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	6	yards	$	2.10	per yard	$	12.60
Direct labor	4	hours	$	6.70	per hour		26.80
Manufacturing overhead (20% variable)	4	hours	$	10.90	per hour		43.60
Total standard cost per pad						$	83.00

The only variable selling and administrative expense will be a sales commission of $7 per pad. The fixed selling and administrative expenses will be $1,540,800 per year.
Because the company manufactures many products, no more than 72,000 direct labor-hours per year can be devoted to production of the new sleeping pads.
Manufacturing overhead costs are allocated to products on the basis of direct labor-hours.

Required:

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

a. Compute the markup percentage that the company needs on the pads to achieve a 12% return on investment (ROI) if it sells all of the pads it can produce.

b. What selling price per sleeping pad will the company establish if it uses a markup percentage on absorption cost? (Round intermediate calculations and final answer to 2 decimal places.)

c. Assume that the company is able to sell all of the pads that it can produce. Compute the companys ROI based on the first year of activity.

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 answer to 2 decimal places.)