Question

Check my work Domingo Corporation makes a variety of headphones with logos. The company has discovered a new market for wireless headphones with logos Market research indicates that these headphones would sell well in the market priced at $42.00 each. Domingo desires an operating profit of 20 percent of costs. Required: What is the highest acceptable manufacturing cost for which Domingo would be willing to produce the headphones? (Round your answer to 2 decimal places.) Book Highest acceptable manufacturing costs -rences

Answer 1

Answer:

Highest acceptable manufacturing cost = $35

Calculation:

Selling price = $42

Desired operating profit = 20% on cost

Selling price = cost + 20% on cost

Let's take cost as 100%.

Now, selling price = cost + 20% of cost = 100% + 20% on 100%

= 42 = 120% on cost

Cost = 42 / 120% = $35

Let's check:

Cost = $35

Desired operating profit = 20% of $35 = 7

Selling price = cost + profit = 35 + 7 = $42

So, highest acceptable manufacturing cost is $35. If the manufacturing cost go beyond that limit, the operating profit will decrease.