Reference no: EM132843987

Question - Crazy Covers Company manufactures decals to place on the outside of laptop computers. Each decal sells for $8.00. The cost currently assigned to each decal is $5.97. A competitor is introducing a new laptop cover decal that will sell for $6.50 each. Management of Crazy Covers believes it must lower its selling price to $6.50 in order to compete in this highly cost-conscious market. Marketing believes that the new selling price will allow Crazy Covers to maintain the current sales level in units. Crazy Covers Company's sales are currently 300,000 laptop decals per year.

a. What is the target cost for the new selling price if target profit is 30 percent of the new selling price?

b. What is the target selling price if costs cannot be reduced and target profit is changed to 20 percent of the new selling price?

c. What is the change in operating income for the year if $6.50 is the new selling price and costs remain the same but sales increase to 500,000?

d. What is the target cost per unit if the selling price is reduced to $6.50 and the company wants to maintain its same total net income as when the selling price was $8.00? Assume that sales will increase to 500,000 decals.