Quantum Enterprises currently sells a piece of luggage for $200.An aggressive competitor has announced plans for a similar product that will be sold for $170.Quantum's marketing department believes that if the price is dropped to meet competition,unit sales will increase by 10%.The current cost to manufacture and distribute the luggage is $130,and Quantum has a profit goal of 30% of sales.If Quantum meets competitive selling prices,what must happen to the company's manufacturing and distribution cost?
A)Nothing,because the costs are within defined ranges and can actually increase by $10.
B)Nothing,because the costs are within defined ranges and can actually increase by $23.
C)Costs must decrease by $11.
D)Costs must decrease by $39.
E)None of thesE.

Question

Quizplus · Accepted Answer

Costs must decrease by $11.The profit goal is 30% of sales. If the price is dropped to $170, the sales will increase by 10%. So, the new sales will be $170 * 1.1 = $187. The profit goal is 30% of $187, which is $56.10. The current cost is $130, so the cost must decrease by $130 - $56.10 = $11.

Quantum Enterprises Currently Sells a Piece of Luggage for $200