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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
E8-3 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
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type of suit. The department indicates that the All-Body suit would sell for approximately
$100. Given its experience, Hannon believes the All-Body suit would have the following manufacturing costs.
Â
Direct materials |
$Â 25 |
Direct labor |
30 |
Manufacturing overhead |
45 |
Total costs |
$100 |
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Instructions
(a)Â Assume that Hannon uses cost-plus pricing, setting the selling price 20% above its costs. (1) What would be the price charged for the All-Body swimsuit? (2) Under what circumstances might Hannon consider manufacturing the All-Body swimsuit given this approach?
(b)Â Assume that Hannon uses target costing. What is the price that Hannon would charge the retailer for the All-Body swimsuit?
(c)Â Â What is the highest acceptable manufacturing cost Hannon would be willing to incur to produce the All-Body swimsuit, if it desired a profit of $20 per unit? (Assume target costing.)
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