Sail Safe Currently Sells Motor Boats for $60,000

question 91

Essay

Sail Safe currently sells motor boats for $60,000. It has costs of $46,500. A competitor is bringing a new motor boat to the market that will sell for $55,000. Management believes it must lower the price to $55,000 to compete in the market for motor boats. The marketing department believes that the new price will cause sales to increase by 12.5%, even with a new competitor in the market. Sail Safe's sales are currently 2,000 motor boats per year. 3
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?

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Definitions:

Forearm

The part of the arm between the wrist and the elbow, consisting of two bones, the radius and ulna, along with muscles, nerves, and blood vessels.

Extends

To stretch out, spread, or continue in space or time; in anatomy, it often refers to the motion increasing the angle between body parts.

Muscle Fiber

A single muscle cell, known for its elongated shape, that contracts to produce movement in the body.

Thickening

The process or result of becoming thicker, often referring to the increase in density or concentration of a substance.