Do-It Company manufactures sinker molds for fishing. A sinker mold has a price of $7.00, and costs currently assigned to it of $5.44. A competitor is introducing a new sinker mold that will sell for $6.00. Management believes it must lower the price to $6.00 in order to compete in the highly cost-conscious sinker mold market. Marketing believes that the new price will maintain the current sales level. Do-It Company's sales are currently 200,000 molds per year.
Required:
a. What is the target cost for the new price if target profit is 20 percent of sales?
b. What is the target selling price if costs cannot be reduced and target profit is changed to 15 percent of sales?
c. What is the change in operating income for the year if $6.00 is the new price and costs remain the same?
d. What is the target cost per unit if the selling price is reduced to $6.00 and the company wants to maintain its same income level?

Question

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The Answer of Do-It Company manufactures sinker molds for fishing. A sinker mold has a price of $7.00, and costs currently assigned to it of $5.44. A competitor is introducing a new sinker mold that will sell for $6.00. Management believes it must lower the price to $6.00 in order to compete in the highly cost-conscious sinker mold market. Marketing believes that the new price will maintain the current sales level. Do-It Company's sales are currently 200,000 molds per year.
Required:
a. What is the target cost for the new price if target profit is 20 percent of sales?
b. What is the target selling price if costs cannot be reduced and target profit is changed to 15 percent of sales?
c. What is the change in operating income for the year if $6.00 is the new price and costs remain the same?
d. What is the target cost per unit if the selling price is reduced to $6.00 and the company wants to maintain its same income level?

Do-It Company Manufactures Sinker Molds for Fishing