Leno Company makes swimsuits and sells these suits directly to retailers. Although Leno has a variety of suits, it does not make the Performance 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 Performance suit would sell for approximately $100. Given its experience, Leno believes the Performance suit would have the following manufacturing costs.

Direct materials $ 25 Direct labor 30 Manufacturing overhead 45 Total costs $100 Instructions

A)Assume that Leno uses cost-plus pricing, setting the selling price 25% above its costs. (1) What would be the price charged for the Performance swimsuit? (2) Under what circumstances might Leno consider manufacturing the Performance swimsuit given this approach?

B)Assume that Leno uses target costing. What is the price that Leno would charge the retailer for the Performance swimsuit?

C)What is the highest acceptable manufacturing cost Leno would be willing to incur to produce the Performance swimsuit, if it desired a profit of $25 per unit? (Assume target costing.)