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, and determine if the company should market it.