Innerspace, Inc., produces drones. The market research department at Innerspace, Inc., gets an idea to market the drone technology, which is a small computer, to the auto industry for use in self-driving cars. Because of the riskiness of the venture, Innerspace, Inc., requires an operating margin 40 percent (operating margin equals revenues minus manufacturing costs).
The competitors of Innerspace, Inc., market a similar small computer for a price of $450.
The manufacturing department at Innerspace, Inc., estimates for the
following manufacturing costs for the small computer to be installed in selfdriving cars.

Direct materials .....................$192
Direct labor ................................80

Manufacturing overhead .........64
Total ........................................$336

Required
a. Suppose Innerspace uses cost-plus pricing, setting the price to manufacturing costs plus 40 percent of manufacturing costs. What price should it charge for the computer?
b. Suppose Innerspace uses target costing. What price should it charge for the small computer? What is the highest acceptable manufacturing cost for which Innerspace would be willing produce to the small computer?
c. If you were in charge of the decision whether to produce the small
computer or not, would you produce the computer? Explain your answer.