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?

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Description: For many years, Manama Corporation has used a straightforward absorption costing approach to cost-plus pricing, with a markup percentage of 20%. It has recentlylost considerable business to foreign competitors that have become very aggressive in the

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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