Question

Dennis TV currently sells small televisions for $180. It has costs of $140. A competitor is bringing a new smal television to market Management believes it must lower the price to $150 to compete in the market for small televisions. Marketing believes that the respon s increase by 10%, even with a new competitor in the market. Dennis' sales are currently 100,000 televisions per yem Reference: 8-1 W hat is the target cost per unit if the company wants to maintain its same profit in total dollars before the change and Marketing's core! OA. $113.64 OB. $123.34 C. $112.50 OD. $140.00

Answer 1

Solution : A. $113.64

Workings: Calculation of target cost per unit if the company wants to maintain the same profit before the change and marketing is correct:

Current Income = 1,00,000 × ($180 - $140) = $40,00,000

Target Cost y : $40,00,000 = ((1,00,000+10%) × $150) - (1,00,000 + 10%)y

y = $1,25,00,000 / 1,10,000 = $113.64

The target cost per unit = $113.64