Reuter Avionics Currently Sells Radios for $1,800

question 148

Essay

Reuter Avionics currently sells radios for $1,800.It has costs of $1,400.A competitor is bringing a new
radio to market that will sell for $1,600.Management believes it must lower the price to $1,600 to
compete in the market for radios.Marketing believes that the new price will cause sales to increase by
10%, even with a new competitor in the market.Reuter's sales are currently 1,000 radios per year.Required:
a.What is the target cost if target operating income is 25% of sales?
b.What is the change in operating income 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 income level, and marketing is correct?

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Definitions:

Stanley Milgram

A psychologist best known for his controversial experiments in the 1960s on obedience, which highlighted the power of authority figures to compel individuals to perform actions against their personal conscience.

Normal People

An imprecise term often used to describe individuals who conform to societal norms or average standards in behavior, appearance, or ability.

Social Psychologists

Scientists who study how people’s thoughts, feelings, and behaviors are influenced by the actual, imagined, or implied presence of others.

Obedience

A form of social influence where an individual follows the directives of an authority figure or the rules of society.