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

Question

Quizplus · Accepted Answer

First, we need to calculate the new sales volume after the price cut:

New sales volume = 10,000 x 1.1 = 11,000

Next, we need to calculate the new revenue:

New revenue = 11,000 x $225 = $2,475,000

Now, we can calculate the target cost:

Target cost = $2,475,000 x (1 - desired profit margin) 
Target cost = $2,475,000 x (1 - 0.25)
Target cost = $1,856,250

Finally, we can subtract the cost per unit to get the target cost per unit:

Target cost per unit = $1,856,250 / 11,000
Target cost per unit = $168.75

Therefore, the target cost per unit is $168.75, and the best choice is C.

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