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 $102. Given its experience, Leno believes the All-Body suit would have the following manufacturing costs. Direct materials $23 Direct labor 32 Manufacturing overhead 45 Total costs $100 Assume that Leno uses cost-plus pricing, setting the selling price 28% 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 $29 per unit? (Assume target costing.) Target cost $

Answer 1

Answer
1)	Cost plus pricing
	Direct Materials	23
	Direct Labour	32
	Manufacturing overhead	45
	Total Cost	100
	Profit margin (in %)	28%
	Profit Margin (in $)	28
	Selling price (Cost +profit Margin)	128
Price Charged for the All Body swimsuit under Cost plus pricing will be $128

2)	Target costing
	Assuming the Leno would be using Target costing then Leno would like to sell the All-Body swimsuit at price the Market research department set i.e., $ 102.

3)	Target Cost ,if profit desired to be $ 29 per unit
	Target Cost =                                                                 Selling price - Profit margin
	Target Cost	102-29	73
	Target Cost would be $ 73 if profit desired to be $ 29.