Question

Sid's Skins makes a variety of covers for electronic organizers and portable music players. The company's designers have discovered a market for a new clear plastic covering with college logos for a popular music player. Market research indicates that a cover like this would sell well in the market priced at $22.50. Sid's desires an operating profit of 25 percent of costs. Required: What is the highest acceptable manufacturing cost for which Sid's would be willing to produce the cover

Answer 1

x = $18.00

the highest acceptable manufacturing cost for which Sid's would be willing to produce the cover is $18.00

Step-by-step explanation:

Let x represent the highest acceptable manufacturing cost.

Since Sid's desires an operating profit of 25 percent of costs.

Profit = 25% of cost = 0.25 × x

Selling price = cost price + profit

Selling price = x + 0.25x = 1.25x

Given;

Selling price = $22.50

Substituting the value;

22.50 = 1.25x

x = 22.50/1.25

x = $18.00

the highest acceptable manufacturing cost for which Sid's would be willing to produce the cover is $18.00