Franco Electronics currently sells a camera for $240. An aggressive competitor has announced plans for a similar product that will be sold for $205. Franco's marketing department believes that if the price is dropped to meet competition, unit sales will increase by 10%. The current cost to manufacture and distribute the camera is $175, and Franco has a profit goal of 20% of sales. If Franco meets competitive selling prices, what is the company's target cost?
A) $41.
B) $48.
C) $164.
D) $175.
E) $192.

Question

Quizplus · Accepted Answer

First, let's calculate the profit margin percentage that Franco Electronics currently has with the camera:

Profit margin percentage = (selling price - cost) / selling price x 100%
Profit margin percentage = (240 - 175) / 240 x 100%
Profit margin percentage = 27.08%

Since Franco Electronics has a profit goal of 20% of sales, we can use this information to calculate the current target cost:

Target cost = selling price - (selling price x profit margin percentage)
Target cost = 240 - (240 x 20%)
Target cost = $192

Now, let's calculate what would happen if Franco Electronics lowers the selling price to $205:

New profit margin percentage = (205 - 175) / 205 x 100%
New profit margin percentage = 14.63%

With a profit goal of 20%, we can calculate the new target cost:

205 - (205 x 20%) = $164

Therefore, Franco Electronics' target cost if they meet competitive selling prices is $164. Option C is correct.

Franco Electronics Currently Sells a Camera for $240