For many years, Manama Corporation has used a straightforward absorption costing approach to cost-plus pricing, with a markup percentage of 20%. It has recently lost considerable business to foreign competitors that have become very aggressive in the marketplace. These firms appear to be using target costing. An example of Manama Corporation's product no. 700, which has the following unit-cost characteristics: direct materials, $50, direct labor, $90, manufacturing overhead, $40, and selling and administrative expenses, $20. The going market price for an identical product of identical quality is $210, which is below what Manama Corporation is charging. a) What is Manama Corporation's selling price for product no. 700 under its current absorption costing approach to cost-plus pricing? b) If Manama Corporation used target costing for item no. 700, what should have been its target cost per unit if the company desired to meet market price of $210 and maintain its current rate of profit on sales?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
For many years, Manama Corporation has used a straightforward absorption costing approach to cost-plus pricing, with a markup percentage of 20%. It has recently lost considerable business to foreign competitors that have become very aggressive in the marketplace. These firms appear to be using target costing. An example of Manama Corporation's product no. 700, which has the following unit-cost characteristics: direct materials, $50, direct labor, $90, manufacturing overhead, $40, and selling and administrative expenses, $20. The going market price for an identical product of identical quality is $210, which is below what Manama Corporation is charging.
a) What is Manama Corporation's selling price for product no. 700 under its current absorption costing approach to cost-plus pricing?
b) If Manama Corporation used target costing for item no. 700, what should have been its target cost per unit if the company desired to meet market price of $210 and maintain its current rate of profit on sales?
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