Mucky
Duck makes swimsuits and sells these suits directly to retailers. EXCEL TEMPLATE
E11-3Mucky Duck makes swimsuits and
sells these suits directly to retailers. Although Mucky Duck 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 $110. Given its experience, Mucky Duck believes the All-Body suit
would have the following manufacturing costs.
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Direct materials
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$ 25
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Direct labor
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30
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Manufacturing overhead
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45
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Total costs
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$100
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Instructions
(a)Assume
that Mucky Duck uses cost-plus pricing, setting the selling price 25% above its
costs. (1) What would be the price charged for the All-Body swimsuit? (2) Under
what circumstances might Mucky Duck consider manufacturing the All-Body
swimsuit given this approach?
(b)Assume
that Mucky Duck uses target costing. What is the price that Mucky Duck would
charge the retailer for the All-Body swimsuit?
(c)What is the highest acceptable manufacturing cost
Mucky Duck would be willing to incur to produce the All-Body swimsuit, if it
desired a profit of $25 per unit? (Assume target costing.)
SOLUTION PREVIEW
Week 7 Template
Name:
EXERCISE
11-3
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(a) (1)
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= ($100 + [$100 x 25%])
= $125.
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(2)
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If the company can cover its variable costs it might want to
sell at the $110 level.
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