Gamecock furniture manufactures beds. Its most popular model, Deluxe, sells for $5,000. It has variable costs totaling $

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Gamecock Furniture Manufactures Beds Its Most Popular Model Deluxe Sells For 5 000 It Has Variable Costs Totaling 1 (36.46 KiB) Viewed 31 times

Gamecock furniture manufactures beds. Its most popular model, Deluxe, sells for $5,000. It has variable costs totaling $2,650 per unit 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 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?