Gerber Clothing Inc. has designed a rain suit for outdoor enthusiasts that is about to be introduced on the market. A standard cost card has been prepared for the new suit, as follows: Direct materials Direct labour Manufacturing overhead (1/6 variable) Total standard cost per suit Salaries Advertising and other Total $ 98,455 437,000 $535,455 Standard Quantity or hours 2.6 metres 1.0 hours 1.0 hours a. The only variable selling and administrative costs will be $7 per suit for shipping. Fixed selling and administrative costs will be as follows (per year): Standard price or Rate $15 per metre 37 per hour 27 per hour Markup percentage Standard Cost $39.00 b. Since the company manufactures many products, it is felt that no more than 10,900 hours of labour time per year can be devoted to production of the new suits. Required: 1. Assume that the company uses the absorption approach to cost-plus pricing. 37.00 27.00 $103.00 c. An investment of $590,000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment. The company wants a 20% ROI in new product lines. d. Manufacturing overhead costs are allocated to products on the basis of direct labour-hours. % a. Compute the markup that the company needs on the rain suits to achieve a 20% ROI if it sells all of the suits it can produce using 10,900 hours of labour time.
Gerber Clothing Inc. has designed a rain suit for outdoor enthusiasts that is about to be introduced on the market. A standard cost card has been prepared for the new suit, as follows: Direct materials Direct labour Manufacturing overhead (1/6 variable) Total standard cost per suit Salaries Advertising and other Total $ 98,455 437,000 $535,455 Standard Quantity or hours 2.6 metres 1.0 hours 1.0 hours a. The only variable selling and administrative costs will be $7 per suit for shipping. Fixed selling and administrative costs will be as follows (per year): Standard price or Rate $15 per metre 37 per hour 27 per hour Markup percentage Standard Cost $39.00 b. Since the company manufactures many products, it is felt that no more than 10,900 hours of labour time per year can be devoted to production of the new suits. Required: 1. Assume that the company uses the absorption approach to cost-plus pricing. 37.00 27.00 $103.00 c. An investment of $590,000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment. The company wants a 20% ROI in new product lines. d. Manufacturing overhead costs are allocated to products on the basis of direct labour-hours. % a. Compute the markup that the company needs on the rain suits to achieve a 20% ROI if it sells all of the suits it can produce using 10,900 hours of labour time.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Gerber Clothing Inc. has designed a rain suit for outdoor enthusiasts that is about to be introduced on the market. A standard cost
card has been prepared for the new suit, as follows:
Direct materials
Direct labour
Manufacturing overhead (1/6 variable)
Total standard cost per suit
Salaries
Advertising and other
Total
$ 98,455
437,000
$535,455
Standard
Quantity or
hours
a. The only variable selling and administrative costs will be $7 per suit for shipping. Fixed selling and administrative costs will be as
follows (per year):
2.6 metres
1.0 hours
1.0 hours
Markup percentage
Standard price
or Rate
$ 15 per metre
37 per hour
27 per hour
b. Since the company manufactures many products, it is felt that no more than 10,900 hours of labour time per year can be devoted to
production of the new suits.
c. An investment of $590,000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment.
The company wants a 20% ROI in new product lines.
d. Manufacturing overhead costs are allocated to products on the basis of direct labour-hours.
Required:
1. Assume that the company uses the absorption approach to cost-plus pricing.
%
Standard
Cost
$39.00
37.00
27.00
$103.00
a. Compute the markup that the company needs on the rain suits to achieve a 20% ROI if it sells all of the suits it can produce using
10,900 hours of labour time.
Transcribed Image Text:b. Using the markup you have computed, prepare a price quote sheet for a single rain suit. (Round your answers to 2 decimal
places.)
Direct materials
Direct labour
Manufacturing overhead
Unit product cost
Add markup of unit product cost
Target selling price
c-1. Assume that the company is able to sell all of the rain suits that it can produce. Prepare an income statement for the first year of
activity.
Sales
Less cost of goods sold
Gross margin
Less selling, general, and administrative expenses:
Shipping
Salaries
Advertising and other
Total selling, general, and administrative expense
Operating income
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