Nagle Devices produces medical instruments, primarily for hospital and medical office use. A new design for its best-selling hospital thermometer has the marketing team considering possibly entering the home market. This would be new for Nagle because it would be selling to large chain retailers and online resellers rather than directly to the user.

Management at Nagle Devices requires an operating profit of 30 percent of manufacturing costs. After doing some market research in this new market, the marketing team has determined that the new thermometer could sell for no more than $46.80. 

The manufacturing department at Nagle estimates the following manufacturing costs for the new thermometer: 

Required

a. Suppose Nagle Devices uses cost-plus pricing, setting the price to manufacturing costs plus 30 percent of manufacturing costs. What price should it charge for the thermometer?

b. Suppose Nagle Devices uses target costing. What is the highest acceptable manufacturing cost at which Nagle Devices would be willing to produce the thermometer?

c. If you were in charge of the decision whether to produce the thermometer or not, would you? What are some of the factors you would consider?

Transcribed Image Text:

Direct materials Direct labor..... Manufacturing overhead Total.... $21.20 8.70 7.10 $37.00