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.
What is the target cost if target profit is 20% of sales and ECC must meet the competitive price of $220?
A) $168.50.
B) $176.00.
C) $184.25.
D) $190.00.

Question

Quizplus · Accepted Answer

To achieve a target profit of 20% of sales at the competitive price of $220, the target cost can be calculated as follows: $220 * (1 - 0.20) = $220 * 0.80 = $176. This means ECC should aim to reduce its cost to $176 per unit to meet the target profit margin.

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