Leno Company makes swimsuits and sells these suits directly to retailers. Althou

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 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 $115. Given its experience, Leno believes the All-Body suit would have the following manufacturing costs. Direct materials Direct labor Manufacturing overhead Total costs $28 32 50 $110 (a1) Your answer is correct. Assume that Leno uses cost plus pricing, setting the selling price 27% above its costs what would be the price charged or the All-Body swimsuit? Round answer to 2 decimal places, e.g. 10.50.) Selling price s 139.7 SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructor Attempts: 1 of 3 used (b) Assume that Leno uses target costing. What is the price that Leno would charge the retailer for the All-Body swimsuit? Selling price s

Explanation / Answer

1. Answer is $115.

$115 is the selling price that Leno could sell the product. Hence this will be the selling price , if Leno is using target costing. Leno would try to make the product, keeping this selling price in mind and structure its cost of making so as to enable it to earn the desired profit.

2. Answer is $86

Target selling price = Total cost + target profit = $62 + 38% of $62 = $85.56 or $86.00

3. Total cost is $56.10

Working:

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Working:

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Activity   - units 515000 Per unit Total Direct material 7.06 Direct labor 11.06 Variable manufacturing overhead 14.78 Fixed manufacturing overhead 6.29 3239350 Variable selling and administrative expenses 13.80 Fixed selling and administrative expenses 3.11 1601650 Total cost 56.10

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