X company currently sells radios for 7K cash. It has cost of 5.4K a competitor is bringing a new radio to market that will sell for 6.85K. Management believes it must lower the price to 6.85K to compete in the market for radios. the marketing department believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. X company's sales are currently 1K radios per year.

1. What is the target per unit cost for the new price if target operating income is 20% of sales?

2. What is the target cost per unit if the selling price is reduced to 6.85K and the company wants to maintain its current income level?