4. For many years, Oxmoor Corporation has used a straightforward cost-plus prici

Question

4. For many years, Oxmoor Corporation has used a straightforward cost-plus pricing system, marking its goods up approximately 20% 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. An example of Oxmoor's woes is typified by item no. 710, which has the following unit-cost characteristics: direct materials, $50; direct labor, $90; manufacturing overhead, $40; and selling and administrative expenses, $20. The going market price for an identical product of identical quality is $210, which is below what Oxmoor is charging. Required A. What is Oxmoor's current selling price for item no. 710? B. If Oxmoor used target costing for item no. 710, what must happen to costs if the company desired to meet market prices and maintain its current rate of profit on sales? By how much?

Explanation / Answer

a)

b)

To achieve the current profit margin with target selling price, the current cost of goods sold needs to be reduced.

Dear Student,

Best effort has been made to give quality and correct answer. But if you find any issues please comment your concern. I will definitely resolve your query.

Per Unit Direct Material $    50.00 Direct Labour $    90.00 Manufacturing Overhead $    40.00 Total cost $ 180.00 Markup (20% of 180) $    36.00 Selling Price (180+36) $ 216.00

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.