Mucky Duck makes swimsuits and sells these suits directly to retailers

Mucky Duck makes swimsuits and sells these suits directly to retailers. Although Mucky Duck has a variety of suits, it does not make the All-Body suit used by highly skilled swimmers. The market research department believes that a strong market exists for this type of suit. The department indicates that the All-Body suit would sell for approximately $110. Given its experience, Mucky Duck believes the All-Body suit would have the following manufacturing costs.
Direct materials
$ 25
Direct labor
30
Manufacturing overhead
  45
Total costs
$100
Instructions
•         (a) Assume that Mucky Duck uses cost-plus pricing, setting the selling price 25% above its costs.
•         (1) What would be the price charged for the All-Body swimsuit?
•         (2) Under what circumstances might Mucky Duck consider manufacturing the All-Body swimsuit given this approach?
•         (b) Assume that Mucky Duck uses target costing. What is the price that Mucky Duck would charge the retailer for the All-Body swimsuit?
•         (c) What is the highest acceptable manufacturing cost Mucky Duck would be willing to incur to produce the All-Body swimsuit, if it desired a profit of $25 per unit? (Assume target costing.)



Exercise – 2

Allied Company’s Small Motor Division manufactures a number of small motors used in household and office appliances. The Household Division of Allied then assembles and packages such items as blenders and juicers. Both divisions are free to buy and sell any of their components internally or externally. The following costs relate to small motor LN233 on a per unit basis.

Fixed cost per unit
$5
Variable cost per unit
$8
Selling price per unit
$30
Instructions
•         (a) Assuming that the Small Motor Division has excess capacity, compute the minimum acceptable price for the transfer of small motor LN233 to the Household Division.
•         (b) Assuming that the Small Motor Division does not have excess capacity, compute the minimum acceptable price for the transfer of the small motor to the Household Division.  (c) Explain why the level of capacity in the Small Motor Division has an effect on the transfer price.


Exercise – 3

Hawks Electronic Repair Shop has budgeted the following time and material for 2008.

HAWKS ELECTRONIC REPAIR SHOP
Budgeted Costs for the Year 2008

Time Charges
Material Loading Charges
Shop employees’ wages and benefits
$108,000
—
Parts manager’s salary and benefits
—
$25,400
Office employee’s salary and benefits
  20,000
 13,600
Overhead (supplies, depreciation, advertising, utilities)
  26,000
 18,000
Total budgeted costs
$154,000
$57,000
Hawks budgets 5,000 hours of repair time in 2008 and will bill a profit of $5 per labor hour along with a 30% profit markup on the invoice cost of parts. The estimated invoice cost for parts to be used is $100,000.
On January 5, 2008 Hawks is asked to submit a price estimate to fix a 72-inch big-screen TV. Hawks estimates that this job will consume 20 hours of labor and $500 in parts.
Instructions
•         (a) Compute the labor rate for Hawks Electronic Repair Shop for the year 2008.
•         (b) Compute the material loading charge percentage for Hawks Electronic Repair Shop for the year 2008.
•         (c) Prepare a time-and-material price quotation for fixing the big-screen TV.