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 $1,450,000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment needed in the manufacturing process. The company’s required rate of return is 28% 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 5 yards $ 2.90 per yard   $ 14.50 Direct labor 3 hours $ 10.00 per hour     30.00 Manufacturing overhead (20% variable) 3 hours $ 14.00 per hour     42.00 Total standard cost per pad             $ 86.50     3. The only variable selling and administrative expense will be a sales commission of $10 per pad. The fixed selling and administrative expenses will be $2,482,600 per year. 4. Because the company manufactures many products, no more than 78,000 direct labor-hours per year can be devoted to production of the new sleeping pads. 5. 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 28% 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 company’s 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.)

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

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:

  1. An investment of $1,450,000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment needed in the manufacturing process. The company’s required rate of return is 28% on all investments.
  2. 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 yards $ 2.90 per yard   $ 14.50
Direct labor 3 hours $ 10.00 per hour     30.00
Manufacturing overhead (20% variable) 3 hours $ 14.00 per hour     42.00
Total standard cost per pad             $ 86.50
 

 

3. The only variable selling and administrative expense will be a sales commission of $10 per pad. The fixed selling and administrative expenses will be $2,482,600 per year.

4. Because the company manufactures many products, no more than 78,000 direct labor-hours per year can be devoted to production of the new sleeping pads.

5. 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 28% 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 company’s 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.)

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 5 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education