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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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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: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.
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
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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