Answer the following questions using the information below:
Ace Books Company currently sells eBook readers for $270.It has costs of $210.A competitor is bringing a new eBook reader to market that will sell for $225.Management believes it must lower the price to $225 to compete in the market for eBook readers.Marketing believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Ace's sales are currently 10 000 eBook readers per year.
-What is the target cost if the company wants to maintain its same profit level,and Marketing is correct (rounded to the nearest cent)?
A)$168.75
B)$170.46
C)$210.00
D)$185.00

Question

Quizplus · Accepted Answer

To maintain the same profit level with a 10% increase in sales at the new price of $225, we first calculate the current profit: $270 - $210 = $60 per eBook reader. The current annual profit is $60 * 10,000 = $600,000. With a 10% increase in sales, the new sales volume is 11,000 eBook readers. To maintain the same total profit of $600,000 with 11,000 eBook readers sold at $225 each, the total revenue is $225 * 11,000 = $2,475,000. To achieve a profit of $600,000, the total costs must be $2,475,000 - $600,000 = $1,875,000. The target cost per eBook reader is $1,875,000 / 11,000 = $170.45, rounded to $170.46.

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