o peseestions displayed beioW. For many years, Leno Corporation has used a strai

Question

o peseestions displayed beioW. For many years, Leno Corporation has used a straightforward cost-plus pricing system, marking its goods up approximately 25 percent of total cost. The company has been profitable; however, it has recently lost considerable business to foreign competitors that have become very aggressive in the marketplace. These firms appear to be using target costing 6 An example of Leno's problem is typified by item no. 8976, which has the following unit-cost characteristics: Direct material Direct labor Manufacturing overhead Selling and administrative expenses s 75 205 125 The going market price for an identical product of comparable quality is $510, which is significantly below what Leno is charging. 6. In many industries, prices are the result of an interaction between market forces and costs True or False True False

Explanation / Answer

The answer is true. As per the information given above, Leno Corporation's cost plus product pricing comes to (75 + 205 + 125 + 55) + 25% = $575. The competing price for product in the market is $510 which is way below that Leno Corporation's price. Competition is what make markets fair and profitable at the most, since competitors are always trying to better the product by continously innovating and bettering their products to have the highest market share, also the consumers benefit from this by getting fair prices.

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