Mt Safety Avionics currently sells radios for $1800 each.Each radio costs $1400 to make.A competitor is introducing a new radio that will sell for $1600.Mt Safety believes it must lower the price to $1600 to compete in the market for radios.However,its Marketing Department believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Mt Safety's sales are currently 1000 radios per year.
Required:
a.What is the target cost if target operating profit is 25% of sales?
b.What is the change in operating profit if marketing is correct and only the sales price is changed?
c.What is the target cost if the company wants to maintain its same profit level,and marketing is correct?
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Question

Quizplus · Accepted Answer

The Answer of Mt Safety Avionics currently sells radios for $1800 each.Each radio costs $1400 to make.A competitor is introducing a new radio that will sell for $1600.Mt Safety believes it must lower the price to $1600 to compete in the market for radios.However,its Marketing Department believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Mt Safety's sales are currently 1000 radios per year.
Required:
a.What is the target cost if target operating profit is 25% of sales?
b.What is the change in operating profit if marketing is correct and only the sales price is changed?
c.What is the target cost if the company wants to maintain its same profit level,and marketing is correct?
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Mt Safety Avionics Currently Sells Radios for $1800 Each