Question

Pet Designs makes various accessories for pets. Their trademark product, PetBed, is perceived to be high quality but not extravagant, and is sold in a variety of pet stores. Wanda Foster, marketing manager, has convinced her boss that they are missing an important segment of the market. “We can increase the quality of the material and design and market PetBed to a higher-end clientele,” Wanda claims. “We won’t compete with our existing product. It’s win-win!”

PetBeds sell for $51 each. Wanda estimates the gross margin at $35. After working with production engineers and the marketing research team, Wanda has designed a bed that she believes the new market segment will pay $78 for. The production engineers and accountants believe it will cost about $62 to make.

If Pet Designs wants to preserve the existing gross margin percentage, what is the target cost at a market price of $78? (Round answer to 0 decimal places, e.g. 25,000.)

Answer 1

	Current Gross Margin %
	= Gross Margin / Selling Price *100
	= $35 / $51 * 100
	= 68.63%
	Gross Margin from new designed bed
	= Selling price of new designed bed * Gross Margin %
	= $78 * 68.63%
	= $54
	So,
	Target Cost
	= Selling price - Gross Margin
	= $78 - $54
	= $24