Answer the following questions using the information below:
Perth TV currently sells flat screen televisions for $180.It has costs of $140.A competitor is bringing a new flat screen television to market that will sell for $150.Perth believes it must lower the price of its television sets to $150 to remain competitive.Marketing believes that the new price will cause sales to increase by 10%,even with the new competitor in the market.Perth'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)$140.00
B)$113.64
C)$123.34
D)$112.50

Question

Quizplus · Accepted Answer

To maintain the same income level with a 10% increase in sales volume at the reduced price of $150, Perth TV must calculate the target cost per unit. Currently, Perth sells 100,000 units at $180 each, with a cost of $140 per unit, resulting in a profit of $40 per unit. The total current profit is $40 * 100,000 = $4,000,000. With a 10% increase in sales volume, the new sales volume will be 110,000 units. To maintain the same total profit of $4,000,000 with the new sales volume at the reduced price of $150, the target cost per unit can be calculated as follows: Target profit per unit = Total profit / New sales volume = $4,000,000 / 110,000 = $36.36. Therefore, the target cost = New selling price - Target profit per unit = $150 - $36.36 = $113.64.

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