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: Standard Quantity or hours Direct materials 2.1 metres Direct labour 1.0 hours Manufacturing overhead (1/6 variable) 1.0 hours Standard price or Rate $10 per metre 34 per hour 18 per hour Standard Cost $21.00 34.00 18.00 Total standard cost per suit $73.00 a. The only variable selling and administrative costs will be $4 per suit for shipping. Fixed selling and administrative costs will be as follows (per year): Salaries Advertising and other Total $ 42,500 190,000 $232,500 b. Since the company manufactures many products, it is felt that no more than 10,600 hours of labour time per year can be devoted to production of the new suits. c. An investment of $560,000 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.
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: Standard Quantity or hours Direct materials 2.1 metres Direct labour 1.0 hours Manufacturing overhead (1/6 variable) 1.0 hours Standard price or Rate $10 per metre 34 per hour 18 per hour Standard Cost $21.00 34.00 18.00 Total standard cost per suit $73.00 a. The only variable selling and administrative costs will be $4 per suit for shipping. Fixed selling and administrative costs will be as follows (per year): Salaries Advertising and other Total $ 42,500 190,000 $232,500 b. Since the company manufactures many products, it is felt that no more than 10,600 hours of labour time per year can be devoted to production of the new suits. c. An investment of $560,000 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.
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:
Standard
Quantity or
hours
Direct materials
2.1 metres
Direct labour
1.0 hours
Manufacturing overhead (1/6 variable)
1.0 hours
Standard price
or Rate
$10 per metre
34 per hour
18 per hour
Standard
Cost
$21.00
34.00
18.00
Total standard cost per suit
$73.00
a. The only variable selling and administrative costs will be $4 per suit for shipping. Fixed selling and administrative costs will be as
follows (per year):
Salaries
Advertising and other
Total
$ 42,500
190,000
$232,500
b. Since the company manufactures many products, it is felt that no more than 10,600 hours of labour time per year can be devoted to
production of the new suits.
c. An investment of $560,000 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.
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