Reference no: EM131624949

Q. Calloway Company can sell 15,000 units of its new product at a selling price of $59. The unit cost is $36. The company's target profit is 45% of sales. The Vice President of Marketing has learned that a competitor plans to introduce a similar product for $49. The Vice President has recommended that Calloway match the competitor's price. She believes the lower selling price will increase sales volume by 10%.

Required:

1) Compute the company's net income assuming the product is sold for $59 and the costs remain at $36.

Assume there were no additional costs.

2) Compute the product's target cost if it is sold at a $59 selling price.

3) Compute the company's net income if the target cost computed in Requirement 2 is achieved.

4) Compute the change in income from Requirement 1 if the product is sold for $49, costs remain at $36, and volume is increased by 10%.