Summit products, inc. is interested in producing and selling an improved widget. Market research indicates that customers would be willing to pay $110 for such a widget and that 68,000 units could be sold each year at this price. The current cost to produce the widget is estimated to be $62.

If summit products requires a 25% return on sales to undertake production, what is the target cost for the new widget?

a) $85.00

b) $82.50

c) $94.50

d) $27.50

Summit has learned that a competitor plans to introduce a similar widget at a price of $100. In response, Summit may reduce its selling price to $100. If Summit requires a 25% return on sales, what is the target cost for the new widget?

a) $100.00

b) $75.00

c) $25.00

d) $27.50

At a price of $100, Summit's market research indicates that it can sell 78,000 units per year. Assuming Summit can reach its new target cost, how will Summit's profit at the $100 price compare to what it would have earned in the absence of the competitor's product?

a) profit will be $80,000 higher

b) profit will be $80,000 lower

c) profit will be unaffected if Summit can reach the revised target cost.

d) profit will be $78,000 higher