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 $1,200,000 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 22% 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	5.0 yards	$	4.70 per yard	$	23.50
Direct labor	3.0 hours	$	9.40 per hour		28.20
Manufacturing overhead (15 variable)	3.0 hours	$	13.20 per hour		39.60
Total standard cost per pad				$	91.30

c. The only variable selling and administrative expense will be a sales commission of $8 per pad. Fixed selling and administrative expenses will be (per year):

Salaries	$	67,000
Warehouse rent		50,000
Advertising and other		1,500,730
Total	$	1,617,730

d. Because the company manufactures many products, no more than 51,000 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.

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

a-1. Compute the selling and administrative expenses.

Selling and administrative expenses:
Variable
Fixed	1,617,730
Total	$1,617,730

a-2. Compute the markup that the company needs on the pads to achieve a 22% ROI if it sells all of the pads it can produce using 51,000 hours of labor time. (Do not round intermediate calculations.)

Required ROI	22	%
Investment	$1,200,000
Selling and administrative expenses
Total
Unit product cost per pad
Unit sales
Total production cost
Markup percentage		%

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

Direct materials	$23.50
Direct labor	28.20
Manufacturing overhead	39.60
Unit product cost	91.30
Add markup
Target selling price	$91.30

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. (Round intermediate calculations to 2 decimal places.)

INCOME STATEMENT
Sales
Cost of goods sold
Gross margin		0
Selling and administrative expenses
Sales commissions
Salaries
Warehouse rent
Advertising and other
Total selling and administrative expense		0
Net operating income		$0

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. (Round intermediate calculations to 2 decimal places.)

Margin
Numerator		Denominator
Net operating income	/	Sales	=	Margin
	/		=	0	%
Turnover
Sales	/	Average operating assets	=	Turnover
	/		=	0
ROI					%

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? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Direct materials
Direct labor
Variable manufacturing overhead
Sales commissions
Minimum acceptable price	$0.00