Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below.] 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. 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 $ 75 205 125 55 The going market price for an identical product of comparable quality is $510, which is significantly below what Leno is charging. 2. What is Leno's current selling price of item no. 8976? Current selling price

Explanation / Answer

Answer for 2)

Total cost per unit of item no. 8976:

Direct material+direct labour+manufacturing overhead+selling and administration expenses

=$75+$205+$125+$55=$460

Current selling price of item no.8976:

$460+(25%×$460)=$575 per unit

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