On Point, Inc., is interested in producing and selling a deluxe electric pencil sharpener. Market research indicates that customers are willing to pay $30 for such a sharpener and that 20,000 units could be sold each year at this price. The cost to produce the sharpener is currently estimated to be $14.
a. If On Point requires a 25 percent return on sales to undertake production of a product, what is the target cost for the new pencil sharpener?
b. If a competitor sells basically the same sharpener for $28, what would On Point's target cost be to maintain a 25 percent return on sales?
c. At a price of $28, On Point estimates that it can sell 22,000 sharpeners per year. Assuming target costs are reached, would On Point earn more or less profit per year at the $28 selling price compared to the original estimated selling price of $30?