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 $100. Given its experience, Leno believes the All-Body suit would have the following manufacturing costs.

45

$100

A- 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?(2) Under what circumstances might leno consider manufacturing the all-body swimsuit given this approach?

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

c- 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 $25 per unit? (Assume target costing.)

Direct materials $25 Direct labor 30 Manufacturing overhead

45

Total costs

$100

Explanation / Answer

Answer to A -

The total cost for producing the all body suit is $ 100.

The selling price is 25% above its costs, then the selling price will be $ 125.

Leno can consider manufacturing the all body swimsuit in the following circumstances.

Answer for ques B

Price that leno would charge the retailer for the all body swimsuit - $105.

Answer for ques C

Highest acceptable manufacturing cost leno would be willing to incur to produce the all body swimsuit, if desired a profit of $25 per unit is $85

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