How to solve

$(20$ pts$)$ 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?