Question

Silicon Technologies, currently sells 17" monitors for $270. It has costs of $210. 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. Silicon believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Silicon's sales are currently 5,000 monitors per year. 1. What is the target cost if the target operating income is 25% of sales? A) $230.00 B) $207.00 C) $172.50 D) $115.00 2. What is the change in operating income if marketing manager is correct and only the sales price is changed? A) $200,000 B) $190,000 C) $(190,000) D) $(200,000)  

Answer 1

Answer:

1

The target cost if the target operating income is 25% of sales =C)$172.50

Working notes for the answer:

Calculation for the target cost

the target operating income is 25% of sales

Operating income

=230x25%

=57.50

So target cost

=Selling price- target operating income

=230-57.50

=$172.50

____________________________________

2

What is the change in operating income if marketing manager is correct and only the sales price is changed

change in operating income =C) (190,000)

Working notes for the answer:

change in operating income

=Income with current seeling price - income with new selling price

=(5000x(270-210) ) - (5500 x(230-210))

=300,000-110,000

=(190,000)