Electronic Component Company (ECC) is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC" video player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new video player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 video players per year.

Irrespective of the competitor's price, what is EEC's required selling price if the target profit is 25% of sales and current costs cannot be reduced?
A) $280.00.
B) $292.50.
C) $299.00.
D) $308.50.

Question

Electronic Component Company (ECC) is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC" video player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new video player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 video players per year.

Irrespective of the competitor's price, what is EEC's required selling price if the target profit is 25% of sales and current costs cannot be reduced?

Irrespective of the competitor's price, what is EEC's required selling price if the target profit is 25% of sales and current costs cannot be reduced?
A) $280.00.
B) $292.50.
C) $299.00.
D) $308.50.

Quizplus · Accepted Answer

To achieve a target profit of 25% of sales, ECC needs to sell the video player at a price where the cost ($210) is 75% of the selling price. Therefore, the selling price should be $210 / 0.75 = $280.

Electronic Component Company (ECC) Is a Producer of High-End Video