Twenty Technologies, Currently Sells 17" Monitors for $270

question 160

Multiple Choice

Twenty Technologies, currently sells 17" monitors for $270. It has costs of $230. A competitor is bringing a new 17" monitor to market that will sell for $245. Management believes it must lower the price to $245 to compete in the market for 17" monitors. Twenty Technologies believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Twenty Technologies's sales are currently 5200 monitors per year.
What is the change in operating income if marketing manager is correct and only the sales price is changed?

• A) $130,000
• B) $122,200
• C) ($122,200)
• D) ($130,000)

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Definitions:

Cost Of Switching

Cost of switching refers to the expenses a customer incurs as a result of changing from one product, supplier, or system to another.

Credit Policy

Guidelines a company follows to determine credit terms for customers, such as payment period and discounts for early payment.

Restocking Cost

The expenses involved in replenishing inventory or stock.