Answer the following question(s)using the information below.Sheltar's TV currently sells small televisions for $180.It has costs of $140.A competitor is bringing a new small television to market that will sell for $150.Management believes it must lower the price to $150 to compete in the market for small televisions.Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market.Sheltar's sales are currently 100,000 televisions per year.
-What is the target cost if the company wants to maintain its same income level, and marketing is correct (rounded to the nearest cent)?
A)$112.50
B)$113.64
C)$123.34
D)$140.00
E)$135.00

Question

Quizplus · Accepted Answer

To maintain the same income level, Sheltar's target cost must be calculated based on the new selling price and increased sales. Current income is (180-140)*100,000 = $4,000,000. New sales are 110,000 units at $150 each, so revenue is $16,500,000. To maintain $4,000,000 income, costs must be $16,500,000 - $4,000,000 = $12,500,000. Dividing by 110,000 units gives a target cost of $113.64 per unit.

Answer the Following Question(s)using the Information Below