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Category > Accounting Posted 17 Aug 2017 My Price 11.00

South Seas Products, Inc.

South Seas Products, Inc., has designed a new surfboard to replace its old surfboard line. Because of the unique design of the new surfboard, the company anticipates that it will be able to sell all the boards that it can produce. On this basis, the following incomplete budgeted income statement for the first year of activity is available:

     
  Sales ( ? boards at ? per board) $ ?         
  Cost of goods sold ( ? boards at ? per board)   985,600
     
  Gross margin   ?         
  Selling and administrative expenses   628,580
     
  Net operating income $ ?         
     
 
Additional information on the new surfboard follows::
a.

An investment of $1,490,000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment. The companyAc€?cs required rate of return is 19% on all investments.
b. A partially completed standard cost card for the new surfboard follows:
  Standard
Quantity or Hours		 Standard
Price or Rate		 Standard
Cost
  Direct materials 5.00 feet $ 3.80 per foot $ 19.00      
  Direct labor 2.5 hours   ? per hour   ?      
  Manufacturing overhead ? hours   ? per hour   ?      
               
  Total standard cost per surfboard           $ ?      
               
 
c.

The company will employ 16 workers to make the new surfboards. Each will work a 40-hour
week, 50 weeks a year.
d. Other information relating to production and costs follows:
   
  Variable manufacturing overhead cost (per board) $5.00    
  Variable selling expense (per board) $8.80    
  Fixed manufacturing overhead cost (total) $345,600    
  Fixed selling and administrative expense (total) $?    
  Number of boards produced and sold (per year) ?    
 
e. Overhead costs are allocated to production on the basis of direct labor-hours.
Required:
1. Complete the standard cost card for a single surfboard. (Round your answers to 2 decimal places.)
  include standard quantity or hours and standard price or rate for

Direct materials

Direct Labor

Man. Overhead

2. Assume that the company uses the absorption costing approach to cost-plus pricing.
a.

Compute the markup that the company needs on the surfboards to achieve a 19% return on investment (ROI). (Round your percentage answer to 1 decimal place i.e. .123 is considered as 12.3)

Using the markup you have computed, calculate the target selling price

c.

Assume, as stated, that the company can sell all the surfboards that it can produce.
 

Complete the income statement for the first year of activity. (Round your selling price per unit to 2 decimal places.

.

.

  
 
   
   
   

 

Answers

Maurice Tutor
(5)
Status NEW Posted 17 Aug 2017 09:08 PM My Price 11.00

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