GenNext Home and Life Solutions Company produces and sells small smart home products. A recent study by the marketing division of the company has discovered a potential market for smart LED bulbs. The study also indicates that a 9-watt Wi-Fi enabled smart LED bulb compatible with voice assistants like Amazon Alexa and Google Assistant can be sold at $25. 

The production department has provided the following rough estimate of the manufacturing cost of each smart LED bulb. 

GenNext desires a gross margin of 15% on the manufacturing cost.

1. Suppose GenNext uses cost-plus pricing, setting the price 15% above the manufacturing cost. What price will be charged for the smart LED bulbs? Will you produce such smart LED bulbs if you were a manager at GenNext? Explain.

2. Suppose GenNext uses target costing. What price will the company charge for a smart LED bulb? What is the highest acceptable manufacturing cost for which GenNext will be willing to produce the product?

3. As a user of target costing, what steps will GenNext take to try to make production of this product feasible?

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Direct materials Direct labor Overhead Total $12.00 6.00 6.00 $24.00