Standard Costs; Absorption Costing Approach to Setting PricesEuclid Fashions, Inc., is int...

Standard Costs; Absorption Costing Approach to Setting Prices

Euclid Fashions, Inc., is introducing a sports jacket. A standard cost card has been prepared for the new jacket, as shown below:

The following additional information relating to the new jacket is available:

a. The only variable selling and administrative cost will be $4 per jacket for shipping. Fixed selling and administrative costs will be (per year):

b. Because the company manufactures many products, no more than 2LOOO direct labor-hours per year can be devoted to production of the new jackets.

c. An investment of $900.000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment. The company's required rate of return is 24%.

d. 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 that the Company needs on the jackets to achieve a 24% ROI if it sells all of the jackets it can produce using 21.000 hours of labor time.

 b.using the markup you have computed, prepare :1 price quote sheet tor a single jacket.

 c.Assume that the company is able to sell of the jackets that it can produce. Prepare an income statement for the first year of activity, and compute the company', ROI fur the year on the jackets, using the ROI formula from Chapter 11

2. After marketing the jackets 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 jackets if its label is sewn in and if an acceptable price can be worked out. What is the minimum acceptable price for this order?