Question 1 50 $108 Open Show Work Question 1 Leno Company makes swimsuits and se

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Question 1

50

$108

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Question 1

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 $112. Given its experience, Leno believes the All-Body suit would have the following manufacturing costs.
Direct materials $26 Direct labor 32 Manufacturing overhead

50

Total costs

$108

Assume that Leno uses cost-plus pricing, setting the selling price 25% 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 $

Assume that Leno uses target costing. What is the price that Leno would charge the retailer for the All-Body swimsuit?
Selling price $

What is the highest acceptable manufacturing cost Leno would be willing to incur to produce the All-Body swimsuit, if it desired a profit of $27 per unit? (Assume target costing.)
Target cost $

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Explanation / Answer

1. Selling price = $108 + $108 x 25% = $135

2. $112, since only relevant figure's are provided in the question.

3. Highest acceptable manufacturing cost = Selling price - desired profit
= $112 - $27 = $85

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