For many years, Leno corporation has used a straight forward cost - plus pricing system. Marking its goods up approximately 25 percent of the total cost. The company has been profitable: However, it has recently lost considerable business to foreign competiters that have become very aggresive in the market place. This firms appear to be target costing. An example of Leno's problem is typified by item no: 8976, which as the following unit - cost characteristics.
Direct material	$30
Direct labor	$75
Manufacturing overhead	$50
Selling and admintrative expense	$25
The going market price for an identical prodcut of comparable quality is $195 which is significantly below what Leno is charging.
Required:
1. Contrast cost plus pricing and target costing. Which of the two approaches could be aptly labeled priced led costing ? Why.
2. What is Leno's current selling price of Item No: 8976 ?
3. If Leno used target costing for Item No: 8976, what must happen to costs if company desires to meet the market price and maintain its currect rate of profit on sales ? By how much ?
4. Would the identification of value added and non-valude added cost assists Leno in this situation ? Briefly explain.
5. Suppose that by previous cost cutting drives, costs had already been "Pared to the bone" on item No - 8976. What might Leno be forced to do with its markup's on cost to remain competitive ? By how much ?
6. Earlier in this chapter the texts noted that in many industries prices are the result of interaction between market forces and cost. Explain what is meant by this statement
7. Contruct an exel spreasheed to solve requirements 2 & 3 above. Show how the solution will change if the following information changes: The direct material & direct laor per unit are $1.25 and $1.85 respectively.