Jay Inc. sells a product for $810 per unit and incurs full product costs of $630 per unit. Recently, a competitor launched a comparable product that sells for $775 per unit. In response, management believes it must lower the price to match the competitors in order to remain competitive in the market. At this new lower selling price, management estimates that sales will increase by 10%, even with a new competitor in the market. Currently, Jay Inc. sells 450,000 units per year.

Required :

(A) If Jay Inc. reduces the selling price and management is correct regarding the increase in sales, what would be the change in Jay Inc.s operating income?

(B) Assume Jay Inc.'s target operating income is 25% of sales revenue. If the company lowers its selling price to match the competitors, what is the target cost per unit?

(C) Rather than have a target operating income of 25% of sales, assume that management wants to earn the same operating income as the company did before making any changes. In this case, what would be the target cost per unit after management lowers the selling price (and sales increase)?

(D) How to companies determine the target price with target costing? Please explain.