A- 1 Sports Vehicles Manufacturing produces a specialty racing bicycle. There is stiff foreign competition, and the company is forced to pursue target pricing. The competitive market price of the bicycle is $2 000. Currently the manufacturing cost for this product at A- 1 is $1 550 and the associated non- manufacturing costs are $270. A- 1's owners insist on achieving a profit of 12% of sales price. How much is the desired cost reduction? (Please round all amounts to the nearest whole dollar.)

Question

Quizplus · Accepted Answer

To achieve a profit of 12% on a $2,000 sales price, the profit must be $240 (12% of $2,000). Therefore, the total cost (manufacturing + non-manufacturing) must be $1,760 ($2,000 - $240). Currently, the total cost is $1,820 ($1,550 + $270). Thus, the desired cost reduction is $60 ($1,820 - $1,760).

A- 1 Sports Vehicles Manufacturing Produces a Specialty Racing Bicycle