Hannon Company makes swimsuits and sells these suits directly to retailers. Although Hannon has a variety of suits, it does not make the All-Body suit used by highly skilled swimmers. The market research department believes that a strong market exists for this type of suit. The department indicates that the All-Body suit would sell for approximately $109. Given its experience, Hannon believes the All-Body suit would have the following manufacturing costs.
|
Direct materials |
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$25 |
|
|
Direct labor |
|
32 |
|
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Manufacturing overhead |
|
50
|
|
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Total costs |
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$107
|
|
Assume that Hannon uses cost-plus pricing, setting the selling price 17% above its costs. What would be the price charged for the All-Body swimsuit?
Assume that Hannon uses target costing. What is the price that Hannon would charge the retailer for the All-Body swimsuit?