Question :
Answer the following questions using the information below:
Block Island TV : 1211803
Answer the following questions using the information below:
Block Island TV currently sells large televisions for $360. It has costs of $280. A competitor is bringing a new large television to market that will sell for $300. Management believes it must lower the price to $300 to compete in the market for large televisions. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Block Island TV sales are currently 100,000 televisions per year.
21) What is the target cost per unit if target operating income is 25% of sales?
A) $75
B) $90
C) $225
D) $270
22) What is the change in operating income if marketing is correct and only the sales price is changed?
A) $2,200,000
B) $600,000
C) $(2,200,000)
D) $(5,800,000)
23) What is the target cost if the company wants to maintain its same income level, and marketing is correct (rounded to the nearest cent)?
A) $225.00
B) $227.27
C) $246.68
D) $280.00
Answer the following questions using the information below:
Silicon Technologies, currently sells 17″ monitors for $270. It has costs of $210. A competitor is bringing a new 17″ monitor to market that will sell for $230. Management believes it must lower the price to $230 to compete in the market for 17″ monitors. Silicon believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Silicon’s sales are currently 5,000 monitors per year.
24) What is the target cost if the target operating income is 25% of sales?
A) $230.00
B) $207.00
C) $172.50
D) $115.00
25) What is the change in operating income if marketing manager is correct and only the sales price is changed?
A) $200,000
B) $190,000
C) $(190,000)
D) $(200,000)
26) Which of the following best describes reverse engineering?
A) It refers to the process of disassembling and analyzing competitor’s product.
B) It refers to the process of first setting the target cost and then designing the product.
C) It refers to the process of manufacturing and designing a product after analyzing the other products of the firm.
D) It refers to the process of studying customer feedback and then designing a product to match customer requirements.
27) When the firm uses the target-costing approach to pricing, the target cost per unit is the difference between the per unit target price and the per unit target ________.
A) contribution margin
B) operating income
C) production costs
D) gross margin
28) Action Toys has a new video game cassette for the upcoming holiday season. It is trying to determine the target cost for the game if the selling price per unit will be set at $60, the going price for video games, and the firm wants to earn a target operating income of 15% of sales. What will be the target cost per unit for the new game?
A) $60
B) $51
C) $27
D) $9
29) Target pricing is a form of cost-based pricing.
30) Reverse engineering is a systematic evaluation of all aspects of the value chain with the objective of reducing costs.
