Question
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
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 $100. Given its experience, Leno believes the All-Body suit would have the following manufacturing costs.
Direct materials | $25 | |||
Direct labor | 30 | |||
Manufacturing overhead | 45 | |||
Total costs | $100 |
A- Assume that Leno uses cost-plus pricing, setting the selling price 25% above its costs. What would be the price charged for the All-Body swimsuit?(2) Under what circumstances might leno consider manufacturing the all-body swimsuit given this approach?
B- Assume that Leno uses target costing. What is the price that Leno would charge the retailer for the All-Body swimsuit?
c- 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 $25 per unit? (Assume target costing.)
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