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6 March, 08:05

Silicon Technologies, currently sells 17" monitors for $270. It has costs of $210. A competitor is bringing a new 17" monitor to market that will sell for $230. Management believes it must lower the price to $230 to compete in the market for 17" monitors. Silicon believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Silicon's sales are currently 5,000 monitors per year. 1. What is the target cost if the target operating income is 25% of sales? A) $230.00 B) $207.00 C) $172.50 D) $115.00 2. What is the change in operating income if marketing manager is correct and only the sales price is changed? A) $200,000 B) $190,000 C) $ (190,000) D) $ (200,000)

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  1. 6 March, 08:23
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    Option C-$172.50

    Option C, ($190,000) is correct

    Explanation:

    Target cost=competitive market price-target operating profit

    competitive market price is $230

    target operating profit is 25% of selling price=$230*25%=$57.50

    target cost=$230-$57.50=$172.50

    Option C is correct as a result of the above computation

    Current operating income = ($270-$210) * 5000=$300,000

    new operating income = ($230-$210) * (5000*110%)

    =$20*5500=$110,000

    The new operating is $110,000 from $300,000 recorded earlier, in a nutshell, the operating income would reduce by $190,000 ($300,000-$110,000)

    Option C is the correct answer
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