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Problem 15-41 Cost-Plus Pricing vs. Target Costing (LO 15-1, 15-3, 15-5, 15-6, 15-8)

Problem 15-41 Cost-Plus Pricing vs. Target Costing (LO 15-1, 15-3, 15-5, 15-6, 15-8) [The following information applies to the questions displayed below.) For many years, Leno Corporation has used a straightforward cost-plus pricing system, marking its goods up approximately 25 percent of total cost. The company has been profitable; however, 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 Leno's problem is typified by item no. 8976, which has the following unit-cost characteristics: $ 99 205 Direct material Direct labor Manufacturing overhead Selling and administrative expenses 135 70 The going market price for an identical product of comparable quality is $540, which is significantly below what Leno is charging Problem 15-41 Part 1 Required: 1. Which of the two approaches could be aptly labeled price-led costing? Multiple Choice O Target costing Cost-plus pricing. Problem 15-41 Part 2 2. What is Leno's current selling price of item no. 8976? Current selling price Problem 15-41 Part 3 3. If Leno used target costing for item no. 8976. what must happen to costs if the company desires to meet the market price and maintain its current rate of profit on sales? By how much? its cost by

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