Exercise 22-3 Leno Company makes swimsuits and sells these suits directly to ret

Question

Exercise 22-3 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. $30 35 Direct materials Direct labor Manufacturing overhead45 Total costs $110 | Assume that Leno uses cost-plus pricing, setting the selling price 23% above its costs, what would be the price charged for the All- Body swimsuit? (Round answer to 2 decimal places, e.g. 10.50.) Selling price 137.5 LINK TO TEXT LINK TO TEXT Assume that Leno uses target costing. What is the price that Leno would charge the retailer for the All-Body swimsuit? Selling price

Explanation / Answer

1 (1) In this case the selling price would be $135.3 ($110 + [$110 X 23%]). The problem with the $135.3 is that it is unlikely that leno will be able to sell any All-Body suits at that price. Market research seems to indicate that it will sell for only $115. 2 In this case the amount would be the selling price of $115 3 The highest acceptable cost would be the target cost. The target cost is $85 as shown below: Target cost = Market price – Desired profit 110-23 = 87

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