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:

Prozac

A brand name for fluoxetine, a prescription drug used to treat depression, obsessive-compulsive disorder, and several other psychological conditions.

Antidepressants

A class of drugs designed to treat depression by altering chemical balances within the brain, often affecting neurotransmitter levels.

MAO Inhibitors

A type of antidepressant drug that works by inhibiting the action of monoamine oxidase, a brain enzyme that breaks down neurotransmitters such as serotonin and dopamine.

Overprescribed

The act of prescribing medication or medical treatment in excess of what is clinically indicated or necessary.