The company president does not believe that the formula should be altered for fear it will tarnish the company's brand

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Business

29 May, 06:40

The company president does not believe that the formula should be altered for fear it will tarnish the company's brand

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Roland White · Answer 1

The company president does not believe that the formula should be altered for fear it will tarnish the company's brand. She prefers that the company spend more on marketing and increase the price. The company’s accountants believe that if marketing costs are increase by $400,000 then the company can achieve a selling price of $42 per bottle without losing any sales. At this price, will the company achieve its target operating income of 40% of revenue?

Total cost = $9,600,000

Add: Increase in marketing costs = 400,000

Total costs of redesigned table = $10,000,000

Revised cost per unit ($10,000,000 : 400,000 units) = $25

Target cost per unit ($42 * 0.60) = $25.20

Yes, this proposal allows the company to meet its goal of target costs less than 60% of revenue and target operating income greater than 40% of revenue.