Hannon Company makes swimsuits and sells these suits directly to retailers. Alth
ID: 2504820 • Letter: H
Question
Hannon Company makes swimsuits and sells these suits directly to retailers. Although Hannon 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 $109. Given its experience, Hannon believes the All-Body suit would have the following manufacturing costs.
50
$107
Assume that Hannon uses cost-plus pricing, setting the selling price 17% above its costs. What would be the price charged for the All-Body swimsuit?
Assume that Hannon uses target costing. What is the price that Hannon would charge the retailer for the All-Body swimsuit?
Direct materials $25 Direct labor 32 Manufacturing overhead50
Total costs$107
Explanation / Answer
Total Cost=$107
Price = Cost + Cost*Margin%=107+107*17%=$125.19
If it uses target pricing,
Price =$ 109
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