Pricing, sales volume, and target profit Martin's Hardware Store has always priced its merchandise at product cost plus 120 percent. Recently the store has experienced declining sales volume and profits. The owner wants to investigate several new pricing strategies, in an attempt to increase sales volume and profit, and is even considering converting to a discount operation.

Converting to a discount store would require an increase in operating costs of $230,000. With all other strategies, operating expenses are expected to remain unchanged. The store's income statement for the most recent year of operations is as follows:

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MARTIN'S HARDWARE STORE Income Statement For the Year Ended November 30, 1992 Sales..... $880,000 Less cost of goods sold 400,000 Gross margin 480,000 Operating expenses: Salaries and wages. Advertising .... Depreciation Insurance $320,000 45,000 56,000 19,000 Utilities.... 12,000 Miscellaneous 18,000 470,000 Net income before tax $ 10,000