Marcon Tech Corp

question 108

Essay

Marcon Tech Corp.,currently sells radios for $7,000.It has costs of $5,400.A competitor is bringing a new radio to market that will sell for $5,850.Management believes it must lower the price to $5,850 to compete in the market for radios.The marketing department believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Marcon's sales are currently 1,000 radios per year.
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 in its estimation?

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Definitions:

Hourly Rate

The sum of money received for every hour worked.

Unit Price

The cost per single unit of an item or investment.

Percent Change

The measurement of the relative change of a quantity, expressed as a percentage, to denote increase or decrease from one period to another.

Share Price

The current price of a single share of a company's stock on the market.