Compute the target cost for the new hood screen

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Reference no: EM131989176

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.

Reference no: EM131989176

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