Robert's Medical Equipment Company manufactures hospital beds.Its' most popular model, Deluxe, sells for $5,000.It has variable costs of $2,800 and fixed costs of $1,000 per unit, base on an average production run of 5,000 units.It normally has four production runs a year, with $400,000 in setup costs each time.Plant capacity can handle up to six runs a year for a total of 30,000 beds.A competitor is introducing a new hospital bed similar to Deluxe that will sell for $4,000.Management believes it must lower the price to compete.Marketing believes that the new price will
increase sales by 25% a year.The plant manager thinks that production can increase by 25% with the
same level of fixed costs.The company currently sells all the Deluxe beds it can produce.Required:
a.What is the annual operating income from Deluxe at the current price of $5,000 and normal production?
b.What is the annual operating income from Deluxe if the price is reduced to $4,000 and sales in units increase by 25%?
c.What is the target cost per unit for the new price if target operating income is 20% of sales?

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The Answer of Robert's Medical Equipment Company manufactures hospital beds.Its' most popular model, Deluxe, sells for $5,000.It has variable costs of $2,800 and fixed costs of $1,000 per unit, base on an average production run of 5,000 units.It normally has four production runs a year, with $400,000 in setup costs each time.Plant capacity can handle up to six runs a year for a total of 30,000 beds.A competitor is introducing a new hospital bed similar to Deluxe that will sell for $4,000.Management believes it must lower the price to compete.Marketing believes that the new price will
increase sales by 25% a year.The plant manager thinks that production can increase by 25% with the
same level of fixed costs.The company currently sells all the Deluxe beds it can produce.Required:
a.What is the annual operating income from Deluxe at the current price of $5,000 and normal production?
b.What is the annual operating income from Deluxe if the price is reduced to $4,000 and sales in units increase by 25%?
c.What is the target cost per unit for the new price if target operating income is 20% of sales?

Robert's Medical Equipment Company Manufactures Hospital Beds