Answer the following questions using the information below:
Fahim's Computer Monitors, Inc., currently sells 17" monitors for $270. It has costs of $210. A competitor is bringing a new 17" monitor to market that will sell for $225. Management believes it must lower the price to $225 to compete in the market for 17" monitors. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Fahim's sales are currently 10,000 monitors per year.
-What is the target cost if operating income is 25% of sales?
A) $168.75
B) $202.50
C) $56.25
D) $67.50

Question

Quizplus · Accepted Answer

The target cost is calculated by determining the desired operating income and subtracting it from the sales price. With a sales price of $225 and a desired operating income of 25%, the target cost is $225 - ($225 * 0.25) = $168.75.

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