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Grillie Grill sells barbeque grills in an increasingly competitive environment. For a number of years, management has followed a successful policy of marking up goods by 20% of COST, which is the company`s desired gross margin.One of the products is Isaw grill with a direct material cost of $8, direct labor cost of $5 and manufacturing overhead of $7. This Isaw grill is designed to compete against others in the marketplace that wholesale for an average of $22. In the last year, management has observed a decline in the unit sales volume despite a very favorable write-up.
REQUIRED:
Problem a. Explain a probable cause of the decline in unit sales volume
Problem b. If the firm uses TARGET COSTING, what would likely be the selling price?
Problem c. What must happen to the current manufacturing cost if Grillie Grill is to achieve its 20% gross margin based on SALES? By how much?
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