Julian Pharma manufactures hospital beds. Its most popular model, Deluxe, sells for $5,000. It has variable costs totaling $2,650 and fixed costs of $1,200 per unit, based on an average production run of 5,000 units. It normally has four production runs a year, with $400,000 in setup costs each time. Plant capacity can handle up to six runs a year for a total of 30,000 beds.
A competitor is introducing a new hospital bed similar to Deluxe that will sell for $3,800. Management believes it must lower the price to compete. The marketing department believes that the new price will increase sales by 25% a year. The plant manager thinks that production can increase by 25% with the same level of fixed costs. The company currently sells all the Deluxe beds it can produce.
Required: | a. | What is the annual operating income from Deluxe at the current price of $5,000? |
| b. | What is the annual operating income from Deluxe if the price is reduced to $3,800 and sales in |
units increase by 25%?
| c. | What is the target cost per unit for the new price if target operating income is 30% of sales? |
The Solar Model
The Atkinson-Shiffrin model
If you get a chance, look through popular read-aloud books for young children, such as The Very ...
Marx's Model of Historical Change
Model for induction of B. subtilis tyrS gene by uncharged tRNATyr
The Solow Model Incorporating Population Growth