For many years, Manama Corporation has used a straightforward absorption costing approach to cost-plus pricing, with a markup percentage of 20%. 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 Manama Corporation's product no. 700, 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 Manama Corporation is charging. Required: a) What is Manama Corporation's selling price for product no. 700 under its current absorption costing approach to cost-plus pricing? b) If Manama Corporation used target costing for item no. 700, what should have been its target cost per unit if the company desired to meet market price of $210 and maintain its current rate of profit on sales?
For many years, Manama Corporation has used a straightforward absorption costing approach to cost-plus pricing, with a markup percentage of 20%. 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 Manama Corporation's product no. 700, 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 Manama Corporation is charging. Required: a) What is Manama Corporation's selling price for product no. 700 under its current absorption costing approach to cost-plus pricing? b) If Manama Corporation used target costing for item no. 700, what should have been its target cost per unit if the company desired to meet market price of $210 and maintain its current rate of profit on sales?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:For many years, Manama Corporation has used a straightforward absorption costing approach to cost-plus pricing, with a markup percentage of 20%. 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 Manama Corporation's product no. 700, 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 Manama Corporation is charging.
Required:
a) What is Manama Corporation's selling price for product no. 700 under its current absorption costing approach to cost-plus pricing?
b) If Manama Corporation used target costing for item no. 700, what should have been its target cost per unit if the company desired to meet market price of $210 and maintain its current rate
of profit on sales?
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