Answer the following question(s)using the information below.Frank's Computer Monitors Inc..currently sells 17" monitors for $270.It has costs of $210.A competitor is bringing a new 17" monitor to market that will sell for $225.Management believes it must lower the price to $225 to compete in the market for 17" monitors.Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market.Frank's sales are currently 10,000 monitors per year.
-What is the target cost if operating income is 25% of sales?
A)$189.00
B)$41.25
C)$210.00
D)$202.50
E)$168.75

Question

Quizplus · Accepted Answer

To calculate the target cost, first we need to determine the target selling price. Since Frank's wants to compete with the new competitor's price of $225 and increase sales by 10%, the new target selling price would be:

New target selling price = $225 * 1.1 = $247.50

Next, we can use the target selling price and the target operating income percentage to calculate the target cost:

Target cost = Target selling price - Target operating income

Target cost = $247.50 - ($247.50 * 0.25) = $185.63

However, we need to add the $5 discount per unit that we are giving to match the new competitor's price. Therefore, the final target cost would be:

Target cost = $185.63 + $5 = $190.63 ≈ $190.50

Therefore, the best choice is E (target cost of $190.50), as it takes into account both the increased sales from the lower price and the desired operating income percentage.

Answer the Following Question(s)using the Information Below