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GMC used cost-plus pricing, setting the price 20% above manufacturing costs. What price would be charged for the ignitor? Would you produce such ignitor? Suppose GMC used target costing. What is the highest acceptable manufacturing cost for which GMC would be willing to produce the ignitor?

GMC used cost-plus pricing, setting the price 20% above manufacturing costs. What price would be charged for the ignitor? Would you produce such ignitor? Suppose GMC used target costing. What is the highest acceptable manufacturing cost for which GMC would be willing to produce the ignitor?

FINANCIAL ACCOUNTING
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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How to solve GMC General Electrical makes small electric HVAC parts. The market research department indicates that an ignitor for HVAC would sell for $39. A similar ignitor currently produced has the following costs: Direct materials $26 Direct labor 7 Overhead 12 Total $45 The company wants a gross margin of 25% of the manufacturing costs. Suppose GMC used cost-plus pricing, setting the price 20% above manufacturing costs. What price would be charged for the ignitor? Would you produce such ignitor? Suppose GMC used target costing. What is the highest acceptable manufacturing cost for which GMC would be willing to produce the ignitor?
Transcribed Image Text:How to solve GMC General Electrical makes small electric HVAC parts. The market research department indicates that an ignitor for HVAC would sell for $39. A similar ignitor currently produced has the following costs: Direct materials $26 Direct labor 7 Overhead 12 Total $45 The company wants a gross margin of 25% of the manufacturing costs. Suppose GMC used cost-plus pricing, setting the price 20% above manufacturing costs. What price would be charged for the ignitor? Would you produce such ignitor? Suppose GMC used target costing. What is the highest acceptable manufacturing cost for which GMC would be willing to produce the ignitor?
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