Answer the following question(s)using the information below.Frank's Computer Monitors Inc..currently sells 17" monitors for $270.It has costs of $210.A competitor is bringing a new 17" monitor to market that will sell for $225.Management believes it must lower the price to $225 to compete in the market for 17" monitors.Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market.Frank's sales are currently 10,000 monitors 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)?

Question

Quizplus · Accepted Answer

To maintain the same income level, Frank's must set the target price to cover all costs and to make a profit at the new expected sales volume.

Current profit per unit = selling price - cost = $270 - $210 = $60

New sales volume = 10,000 * 1.1 = 11,000 units

New profit per unit = selling price - cost = $225 - $x

Equating the two profit per unit expressions, we get:

$60 = $225 - $x

$x = $225 - $60 = $165

So, the target cost is $165. To convert to target price, add a profit margin:

Target price = $165 + profit margin

Let profit margin be y. Then:

$225 = $165 + y

y = $60

Thus, the target price is $225 + $60 = $285.

Therefore, the best choice is B, as it is the closest option to the rounded target price, which is $285.

Answer the Following Question(s)using the Information Below