Great Escapes Company manufactures scooters. The X14 model has total variable costs totalling \($4,800\) and total fixed costs of \($500,000\) per month based on annual production of 5,000 scooters. Great Escapes normally has 6 production runs per year, with \($280,000\) in set-up costs each time. The company currently has plant capacity for 10,000 scooters per year. A competitor’s scooter similar to X14 currently sells for \($7,500.\) The marketing department at Great Escapes believes that if the company charges \($7,400\) there will be an annual demand of 10,000 scooters. An \($8,500\) price will result in an annual demand of 7,500 scooters. A price of \($10,000\) will result in an annual demand of 5,000 scooters.

a. What is the annual operating income if the price is set at \($7,400?\) At \($8,500?\) At $10,000?

b. If Great Escapes wants to achieve a target cost of 75% of the target price, at which price should the company set the scooter?