None How to solveGMC General Electrical makes small electric HVAC parts. The marketresearch department indicates that an ignitor for HVAC would sell for $39. A similar ignitorcurrently produced has the following costs: Direct materials $26 Direct labor 7 Overhead 12Total $45 The company wants a gross margin of 25% of the manufacturing costs. SupposeGMC used cost-plus pricing, setting the price 20% above manufacturing costs. What pricewould be charged for the ignitor? Would you produce such ignitor? Suppose GMC usedtarget costing. What is the highest acceptable manufacturing cost for which GMC would bewilling to produce the ignitor?

Manufacturing cost per ignitor = Direct material + Direct labor + Overheads…

GMC used cost-plus pricing, setting the price 20% above manufacturing costs. What price would be charged for the ignitor? Would you produce such ignitor? Suppose GMC used target costing. What is the highest acceptable manufacturing cost for which GMC would be willing to produce the ignitor?

GMC used cost-plus pricing, setting the price 20% above manufacturing costs. What price would be charged for the ignitor? Would you produce such ignitor? Suppose GMC used target costing. What is the highest acceptable manufacturing cost for which GMC would be willing to produce the ignitor?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter7: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 58P: Polaris Inc. manufactures two types of metal stampings for the automobile industry: door handles and...

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How to solve
GMC General Electrical makes small electric HVAC parts. The market
research department indicates that an ignitor for HVAC would sell for $39. A similar ignitor
currently produced has the following costs: Direct materials $26 Direct labor 7 Overhead 12
Total $45 The company wants a gross margin of 25% of the manufacturing costs. Suppose
GMC used cost-plus pricing, setting the price 20% above manufacturing costs. What price
would be charged for the ignitor? Would you produce such ignitor? Suppose GMC used
target costing. What is the highest acceptable manufacturing cost for which GMC would be
willing to produce the ignitor?

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