Question

For many years, Leno corporation has used a straigtforwad cost-plus pricing system, marking its goods up approimately 25 percent of total cost. The company has been profitable, however, it has recently lost conciderable business to foreign competitors that have become very aggressive in the marketplace. These frims appear to be using target costing .

An example of Leno’s problem is typified by tiem8979 which as the following unit cost characteristic

Direct marterial $80

Direct labor 210

Manuvaturing overhead 130

Selling and administrative expenses 60

The going market price for an identical product of comparable quality is $530 which is sinificatly below what Leno is charging.

2. What is Leno current selling price of iterm 8976

3. If leno used taraget costinf for item no 8976 what must happen to the costs if the company desires to meet the market price and maintain its current rate of profit on sales? By how much?

5 Suppose that by previos cost cutting drives, cost had already been pared to the bone on item no 8976. What might Leno be forced to do with its markup on cost to remain competitive? By how much?( do not round itermdiate calculations. Round you percentage answer to 2 decimal)

Answer 1