Luscious Lure manufactures fishing equipment. Midnight Fly, a leading lure for the company, has a price of $3.50. It has costs currently assigned to it of $2.72. A competitor is introducing a new lure similar to Midnight Fly that will sell for $3.00. To compete in the highly cost-conscious lure market, management believes it must lower the price, probably to $3.00. Marketing believes that the new price will maintain the current sales level. Midnight Fly's sales are currently 200,000 per year. 

REQUIRED: 

1. For the new price, what is the target cost 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. If the company wants to maintain its same income level, what is the target cost per unit if the selling prices is reduced to $3.00?

Answer rating: 100% (QA)

1 Sales revenue new price 200 000 x 3 600 000 Target profit 20 x sales r... View the full answer