Hannon Company makes swimsuits and sells these suits directly to retailers. Although Hannon 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 $100. Given its experience, Hannon 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 Hannon uses cost-plus pricing, setting the selling price 20% above its costs.
(1) What would be the price charged for the All-Body swimsuit?
(2) Under what circumstances might Hannon consider manufacturing the All-Body swimsuit given this approach?
(b) Assume that Hannon uses target costing. What is the price that Hannon would charge the retailer for the All-Body swimsuit?
(c) What is the highest acceptable manufacturing cost Hannon would be willing to incur to produce the All-Body swimsuit, if it desired a profit of $20 per unit?