# 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

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):
Salaries . . . . . . . . . . . . . . . . . . \$ 90,000
Advertising and other . . . . . . . 384,000
Total . . . . . . . . . . . . . . . . . . . . \$474,000
b. Since the company manufactures many products, no more than 21,000 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 a price quote sheet for a single jacket.
c. Assume that the company is able to sell all of the jackets that it can produce. Prepare an income statement for the first year of activity, and compute the company€™s ROI for the year on the jackets, using the ROI formula from Chapter 12.
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 thisorder?

Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...

## This problem has been solved!

Do you need an answer to a question different from the above? Ask your question!
Related Book For

## Managerial Accounting

ISBN: 9780073526706

12th Edition

Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer

Question Details
Chapter # 17
Section: Exercises
Problem: 4
Posted Date: March 31, 2012 01:16:13