Problem
Target Costing and Pricing
Lovebug Company has determined that its new automotive hood screen would gain widespread customer acceptance if the company could price it at or under $30. Anticipated labor hours and costs for each unit of the new product follow.
Direct materials cost $5
Direct labor cost
Manufacturing labor:
Hours 0.2
Hourly labor rate $10
Assembly labor:
Hours 0.5
Hourly labor rate $15
Machine hours 1
The company currently uses the following three activity-based cost rates:
Materials handling $0.30 per dollar of direct materials
Production $5.00 per machine hour
Product delivery $0.50 per unit
The company's minimum desired profit is 40 percent over total production and delivery cost.
Compute the target cost for the new hood screen.