The price for the standard Ride King is $650. Manufacturer gross profit margin on this unit is approximately 15 percent. The cost of goods sold for this product is approximately $100 for labor and $453 for parts. SMC company provides a one-year warranty on all parts and labor. Riding mowers accounted for 63.6 percent of SMC’s total sales and 57.8 percent of total gross profit in 2015.The T-44 mower accounted for 8.2 percent of SMC’s total sales and 13.2 percent of total gross profit in 2015. Mower kits do not provide a material contribution to the company’s gross profit. Kits accounted for 8.2 percent of SMC’s total sales in 2015.The replacement parts business for mowers accounts for the remainder (20 percent) of SMC sales. Replacement parts accounted for 29 percent of the company’s total gross profit. About 75 percent of company sales are made in nonmetropolitan areas. Wholesalers account for 30 percent of riding mower sales; direct-to-dealer sales account for 25 percent of sales. Private-label riding mower sales account for 40 percent of SMC sales. Parts of Europe and in the South Pacific, produce 5 percent of total company sales. The company has consistently generated a net profit return on sales of 10 percent or more annually. During 2015, Ride King riding mower accounts receivable and inventory had turns of 8.1 and 5.8. Industry sources estimated that the lawn and garden equipment industry produced sales of $5.5 billion in 2015, at manufacturer’s prices. Of this amount, 74 percent was for finished goods and 25 percent was for engines. Components, including parts, accounted for the remainder of industry sales.It is estimated that private-label mowers currently account for 65 to 75 percent of total industry sales. Although retail prices vary by type of retail outlet, representative retail prices for national and private-label riding mowers typically range from $800 to $5,000. These chains, plus outdoor power equipment/farm equipment and supply stores, lawn and garden stores, discount department stores, home centers, and hardware stores, account for 90 percent of total industry sales.The inquiry received by SMC concerning a private-brand distribution arrangement requested a sample order of 700 standard riding mower units to be delivered in January 2017. The national retail merchandise chain expected to make an annual order of approximately 8,200 units. The chain wanted to purchase the mowers at a price 5 percent lower than SMC’s manufacturer’s list price for its standard model. Reorders would be at the same price. The mowers would be shipped free on board (FOB) factory (that is, the chain would pay for all freight charges). The chain wanted to carry inventories in its regional warehouses, but did not want title to transfer to itself until the mowers were shipped to a specific company store. From that point, payment would be made in 45 days. However, the chain agreed to take title to mowers that had been in one of its warehouses for two months. A 45-day payment period would follow the title transfer. The chain expected SMC to reimburse it for any labor costs resulting from warranty work at $22.00 per hour. Replacement parts would be purchased at present price points and shipped FOB from factory. A two-year contract was offered, which could be automatically extended on a year-to-year basis. Either party could terminate the contract with a six-month notice. A new price would be negotiated at the end of the original two-year period. The contract would be negotiated annually thereafter. The chain also required SMC to assume liability for personal injury that might result from the use and maintenance of the mowers. The chain would supply all advertising related to the product and would not allow SMC to mention its relationship with the chain in any of its advertising or promotion. SMC was self-insured and had not experienced any significant product-liability claims with well over 300,000 units having been sold or used since 1956. However, if the proposal were pursued, greater exposure to liability claims would be possible. The cost of overtime, reflected in the direct labor cost, would represent an additional 4 percent of the current manufacturer’s sales price for riding mowers. Additional direct material costs could represent another 1 percent of the current manufacturer’s price. Additional overhead costs were estimated to be another 1 percent; other related costs, including additional inventory insurance, pilferage and breakage, additional wear and maintenance on machines, and a county property tax based on inventory, would account for an additional 1.5 percent. A production agreement would create some one-time added costs for SMC. These costs would include arranging sources for specific materials that differed from those used in standard production and a rearrangement of production facilities to accommodate the new output levels. These one-time costs would be in the range of $10,000 to $12,000. The added financing costs were of particular importance. Normally, SMC obtained short-term funds from local banks at 2.5 percentage points above the prime rate (currently 7 percent). The additional average inventory carried with this proposal would be 2,100 units. Smith felt that, as a result, SMC could initially lose approximately 300 units a year of Ride King sales volume. In addition, dealers directly affected would not welcome the added competition. Wayne Smith believed that a small percentage of independent dealers would be likely to drop the SMC line.

come Statement (Year ended September 30, 2015)
Sales			$4,292,000
Cost of goods sold			3,587,150
Gross profit			704,850
Sales and administrative expenses	$264,700
Depreciation	___2,300
Total expenses			_267,000
Income from continuing operations			$437,850
Other income (expenses)			__(7,650)
Other incomeᵇ			$430,200
Balance Sheet (September 30, 2015)
Assets
Current assets			$1,133,000
Net property and equipment			____53,000
Total assets			$1,186,000
Liabilities and owner’s equity
Current liabilities			212,800
Owner’s equity			___973,200
Total liabilities and owner’s equity			$1,186,000
ªAll figures disguised and not useful for research purposes. ᵇSMC is an “S” Corporation and, therefore, pays no corporate federal or state income taxes.

Based upon the data found, what are the following (relevant) costs associated with the private-label brand option (assume a total of 8200 private-label mower units are ordered / sold)

PLEASE SHOW CALCULATIONS

Proposal price (expressed per unit)

Current cost of goods sold (expressed per unit)

Incremental costs (express all per unit)

Direct materials (expressed per unit)

Overhead costs (expressed per unit)

Other incremental costs (expressed per unit)

Direct labor (expressed per unit)

Total cost of goods sold and total incremental costs (expressed per unit)

Added asset carrying costs and other costs (do not express per unit)

Answer rating: 100% (QA)

Proposal price expressed per unit The proposal price is 650 per unit Current cost of goods sold expr... View the full answer