Mucky Duck makes swimsuits and sells these suits directly to retailers

ACC 560 Week 5 Assignment

E8-3 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. What would be the price charged for the All-Body swimsuit?
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.)

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Maddox Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets

P9-9 (Statement and Note Disclosure, LCM, and Purchase Commitment) Maddox Specialty Company, a division of Lost World Inc., manufactures three models of gear shift components for bicycles that are sold to bicycle manufacturers, retailers, and catalog outlets. Since beginning operations in 1978, Maddox has used normal absorption costing and has assumed a first-in, first-out cost flow in its perpetual inventory system. The balances of the inventory accounts at the end of Maddox's fiscal year, November 30, 2010, are shown below. The inventories are stated at cost before any year-end adjustments.

Finished goods $647,000
Work-in-process 112,500
Raw materials 264,000
Factory supplies 69,000

AND SO ON

a. Prepare the inventory section of Maddox's balance sheet as of November 30, 2010.
b. Without prejudice to your answer to P9-9 (a), assume that the market value of Maddox's inventories is less than cost. Explain how this decline would be presented in Maddox's income statement for the fiscal year ended November 30, 2010.
c. Assume that Maddox has a firm purchase commitment for the same type of derailleur included in the raw materials inventory as of November 30, 2010, and that the purchase commitment is at a contracted price 15% greater than the current market price. These derailleurs are to be delivered to Maddox after November 30, 2010. Discuss the impact, if any, that this purchase commitment would have on Maddox's financial statements prepared for the fiscal year ended November 30, 2010.

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