Reference no: EM133026703

Question - 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 -

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

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

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

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?