For Many Years, Oxmoor Corporation Has Used a Straightforward Cost-Plus

Essay

For many years, Oxmoor Corporation has used a straightforward cost-plus pricing system, marking its goods up approximately 20% 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 Oxmoor's woes is typified by item no. 710, which has the following unit-cost characteristics: direct materials, $50; direct labor, $90; manufacturing overhead, $40; and selling and administrative expenses, $20. The going market price for an identical product of identical quality is $210, which is below what Oxmoor is charging.
Required:
A. Contrast cost-plus pricing and target costing.
B. What is Oxmoor's current selling price for item no. 710?
C. If Oxmoor used target costing for item no. 710, what must happen to costs if the company desired to meet market prices and maintain its current rate of profit on sales? By how much?