Exercise 22-3

Leno Company makes swimsuits and sells these suits directly to retailers. Although Leno 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 $105. Given its experience, Leno believes the All-Body suit would have the following manufacturing costs.

	Direct materials		$25
	Direct labor		27
	Manufacturing overhead		48
	Total costs		$100

Assume that Leno uses cost-plus pricing, setting the selling price 24% above its costs. What would be the price charged for the All-Body swimsuit? (Round answer to 2 decimal places, e.g. 10.50.)

Selling price

$

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Assume that Leno uses target costing. What is the price that Leno would charge the retailer for the All-Body swimsuit?

Selling price

$

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What is the highest acceptable manufacturing cost Leno would be willing to incur to produce the All-Body swimsuit, if it desired a profit of $21 per unit? (Assume target costing.)

Target cost

$