Reference no: EM132478986

Point 1: Big Al Company manufactures lures molds for fishing. A lure mold has a price of $7.00. Costs currently assigned to it total $5.44. A competitor is introducing a new lure mold that will sell for $6.00. Management believes it must lower the price to $6.00 in order to compete in the highly cost-conscious lure mold market. Marketing believes that the new price will maintain the current sales level. Big Al Company's sales are currently 200,000 molds per year.

Required

Question 1: What is the target cost for the new price if target profit is 20 percent of sales?

Question 2: What is the target selling price if costs cannot be reduced and target profit is changed to 15 percent of sales?

Question 3: What is the change in operating income for the year if $6.00 is the new price and costs remain the same?

Question 4: What is the target cost per unit if the selling price is reduced to $6.00 and the company wants to maintain its same income level