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For many years, Leno Corporation has used a straightforward cost-plus pricing system, marking its goods up approximately 25 percent of total cost. The company has been profitable; however, 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 Lenos problem is typified by item no. 8976, which has the following unit-cost characteristics:

Direct material	$	80
Direct labor		180
Manufacturing overhead		110
Selling and administrative expenses		50

The going market price for an identical product of comparable quality is $455, which is significantly below what Leno is charging.

1. Which of the two approaches could be aptly labeled price-led costing? Targeting costing or Cost plus- pricing

2. What is Lenos current selling price of item no. 8976?

3. If Leno used target costing for item no. 8976, what must happen to costs if the company desires to meet the market price and maintain its current rate of profit on sales? By how much?

4. Suppose that by previous cost-cutting drives, costs had already been pared to the bone on item no. 8976. What might Leno be forced to do with its markup on cost to remain competitive? By how much? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e., .1234 should be entered as 12.34).)

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