Phillips Company Can Sell 15,000 Units of Its New Product

Essay

Phillips Company can sell 15,000 units of its new product at a selling price of $116.The unit cost is $72.The company's target profit is 40% of sales.The Vice President of Marketing has learned that a competitor plans to introduce a similar product for $104.The Vice President has recommended that Phillips match the competitor's price.She believes the lower selling price will increase sales volume by 20%.
Required:
1)Compute the company's net income assuming the product is sold for $116 and the costs remain at $72.Assume there were no additional costs.
2)Compute the product's target cost if it is sold at a $116 selling price.
3)Compute the company's net income if the target cost computed in Requirement 2 is achieved.
4)Compute the change in income from Requirement 1 if the product is sold for $104,costs remain at $72,and volume is increased by 20%.