Lauren Crafts currently sells motor boats for $6,000. It has costs of $4,650 per motor boat. A competitor is bringing a new motor boat to the market that will sell for $5,500 Management believes that it must lower its price to $5,500 to compete in the market. Marketing believes that the new price will lead to an increase in sales of 12.5% even with the new competitor. Currently, Lauren is selling 2,000 boats a year.

Required (10 points):

1. What is the target cost if target operating income is 25% of sales, based on the current price?
2. What is the change in operating income if marketing is correct about the increase in sales and only the sales price is changed?
3. What is the target cost if the company wants to maintain the same income level of 25%, the sales price is changed and marketing is correct about the increase in sales?