Can you help me understand this Accounting question?
Summit products are interested in producing and selling an improved widget. Market research suggest customers are willing to pay $78 for such a widget and that 38,000 unit could be sold each year at that price. The current cost to produce the widget is estimated to be $52. If they require a %25 return on sales to undertake production, what is target cost for new widget?
Target Cost =
Question 2: (Use above info)
Summit has learned that a competitor plans to introduce a similar widget at a price of $68. In response, Summit may reduce it selling price to $68. If it requires a %25 return on sales, what is the target cost for the new widget?
At a price of $68, market research indicates that Summit can sell 48,000 units per year. Assuming Summit can reach its new target cost, how will Summit’s Profit at the $68 price compare to what it would have earned in the absence of the competitors product?
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