Using the cost-plus pricing approach, what target selling price would you set for the product?

Using your favorite search engine, choose a product that you are interested in learning more about, including how the product is manufactured. After you have located information about the product, answer the following questions about it.

• What is a description of the product, and what company makes it?
• What is the process used to manufacture the product? Name the raw materials and indirect materials used in its manufacturing.
• Who would be considered direct and indirect labor in the making of this product, and why?
• Using the cost-plus pricing approach, what target selling price would you set for the product? Explain why you chose this price.
• Assume you are the owner of the company that produces the product. You have been offered the option to outsource the product’s component parts instead of making them. What cost factors would need to be considered? Does it make more financial sense to outsource these parts? Explain with examples/assumptions.
• Assume the product was being made on an old piece of machinery that is slowing down production and causing delayed completion times. You have been given the option to either buy a new replacement piece of machinery or have this current machine reworked/repaired. Which option would you chose? What factors would be considered? State all assumptions and be sure to describe how incremental analysis would be used to make this decision.

Sample Solution

Product: Tesla Model 3

1. The Tesla Model 3 is an electric sedan car produced by Tesla, Inc.
2. The process used to manufacture the Model 3 involves several steps, including stamping, welding, painting, and final assembly. The raw materials used in the production of the Model 3 include aluminum, steel, and various plastics. Indirect materials used in the manufacturing process include lubricants, cleaning agents, and electrical components.
3. Direct labor in the making of the Model 3 would include assembly line workers, quality control technicians, and engineers. Indirect labor would include supervisors, managers, and support staff such as administrative assistants and maintenance personnel.
4. To use the cost-plus pricing approach, we would need to add up the total cost of producing the Model 3, including materials, labor, overhead, and any other expenses, and then add a markup percentage to determine the selling price. Assuming a total cost of $35,000 per car and a markup percentage of…NEED A COMPREHENSIVE ANSWER? POST YOUR ORDER