Answer the following questions using the information below:
Perth TV currently sells flat screen televisions for $180.It has costs of $140.A competitor is bringing a new flat screen television to market that will sell for $150.Perth believes it must lower the price of its television sets to $150 to remain competitive.Marketing believes that the new price will cause sales to increase by 10%,even with the new competitor in the market.Perth's sales are currently 100 000 televisions per year.
-What is the target cost if target operating profit is 25% of sales?
A)$45.00
B)$135.00
C)$112.50
D)$37.50

Question

Quizplus · Accepted Answer

First, we need to calculate the new sales revenue after the 10% increase:
New sales = 100,000 x 1.1 = 110,000 televisions

Then, we need to calculate the target operating profit:
Target operating profit = 25% of sales revenue
Target operating profit = 0.25 x (110,000 x $150)
Target operating profit = $4,125,000

Finally, we can calculate the target cost:
Target cost = Sales price - Target operating profit per unit
Target cost = $150 - ($4,125,000 / 110,000)
Target cost = $112.50 per unit

Therefore, the answer is C, $112.50.

Answer the Following Questions Using the Information Below