Warthog Avionics Currently Sells Radios for $3,600

question 11

Essay

Warthog Avionics currently sells radios for $3,600. It has costs of $2,800. A competitor is bringing a new radio to market that will sell for $3,200. Management believes it must lower the price to $3,200 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. Warthog'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:

Extreme Sports Gear

Equipment and apparel designed specifically for the unique demands and risks associated with extreme sports activities.

Website

A collection of web pages and related content that is identified by a common domain name and published on at least one web server.

Mobile Marketing

The marketing activities conducted through mobile devices, such as smartphones and tablets, to reach consumers in a timely, personalized, and interactive manner.

Smartphone App

A mobile application developed specifically for use on smartphones and tablets, catering to various needs such as communication, entertainment, and productivity.