Twenty Technologies, currently sells 17" monitors for $280. It has costs of $220. A competitor is bringing a new 17" monitor to market that will sell for $230. Management believes it must lower the price to $230 to compete in the market for 17" monitors. Twenty Technologies believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Twenty Technologies' sales are currently 5100 monitors per year.
What is the target cost if the target operating income is 25% of sales?
A) $230.00
B) $210.00
C) $172.50
D) $165.00

Question

Quizplus · Accepted Answer

Increase in sales: 5100x (1 + 10%) = 5610
Operating income = $57.50 ($230 × 0.25)
The target cost = $172.50 ($230 - $57.50).

Twenty Technologies, Currently Sells 17" Monitors for $280