Electronic Component Company is a producer of high-end video and music equipment.ECC currently sells its top of the line "ECC" DVD player for a price of $250.It costs ECC $210 to make the player.ECC's main competitor is coming to market with a new DVD player that will sell for a price of $220.ECC feels that it must reduce its price to $220 in order to compete.The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%.ECC currently sells 200,000 DVD players per year.
Assuming sales and marketing are not correct in their estimation and the volume of sales is not changed and ECC meets the competitive price,what is the target cost if ECC wants to maintain its same income level?
A)$210.
B)$200.
C)$190.
D)$180.
$210 - ($250-$220)= $180
Or solve: 200,000x(250-210)= 200,000x(220-X);X = $180

Question

Quizplus · Accepted Answer

If ECC wants to maintain its same income level, it needs to reduce its cost per unit to match the competitor's price while still making the same profit. Therefore, the target cost would be $180 per unit ($220 selling price - $40 profit per unit). This means that ECC would need to reduce its cost of production from $210 to $180 per unit in order to maintain its same income level. Therefore, the correct answer is D, $180.

Electronic Component Company Is a Producer of High-End Video and Music