Sail Safe Currently Sells Motor Boats for $60,000

question 91

Essay

Sail Safe currently sells motor boats for $60,000. It has costs of $46,500. A competitor is bringing a new motor boat to the market that will sell for $55,000. Management believes it must lower the price to $55,000 to compete in the market for motor boats. The marketing department believes that the new price will cause sales to increase by 12.5%, even with a new competitor in the market. Sail Safe's sales are currently 2,000 motor boats per year. 3
Required:
a. What is the target cost for the new target price if target operating income is 20% of sales?
b. What is the change in operating income if marketing department is correct and only the sales price is changed?
c. What is the target cost if the company wants to maintain its same income level, and marketing department is correct?

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Definitions:

Oppressive Conduct

Actions by major stakeholders in a corporation that unfairly prejudice the interests of minority shareholders.

Articles Of Incorporation

Legal documents filed with a governmental body to legally document the creation of a corporation, detailing key aspects such as name, purpose, and structure.

Bylaws

Written rules and regulations adopted by an organization or community to govern its actions and ensure structured management.

Corporate Assets

All tangible and intangible assets owned by a corporation, including cash, property, intellectual property, and goodwill, used in the operation of the business.