Question
Case 1 Peninsula Manufacturing sells a product for $950 per unit and incurs full production costs of $760 per unit. A new competitor has
Case 1 Peninsula Manufacturing sells a product for $950 per unit and incurs full production costs of $760 per unit. A new competitor has entered the market selling a comparable imported produce that sells for $875 per unit. Management believes it must lower price to match competitive price to remain competitive. Management estimates sales at this reduced price will increase 10%. Currently Peninsula sells 325,000 units per year. Required: a. If Peninsula reduces the selling price and management is correct regarding increase in sales, what would be the change in Peninsula's operating income? b. Assume Peninsula target operating income is 30% of sales revenue. If the company lowers its selling price, what is the target cost per unit? c. Rather than have a target operating income of 30% of sales, assume management wants to earn the same operating income as the company made before the changes. In this case what would be the target cost per unit after management lowers the selling price and increasing sales? Round to the nearest cent. d. How doe companies determine the target price with target costing? Please explain
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