Question

Sales of Granite City Products Inc. have been on a steady decline for the last 12 months. A market research study conducted revealed that the product of Granite City Products Inc. can be sold only for $420 as opposed to the current market price charged of $520 per unit. Granite City Products Inc. has decided to revise its sales price to $420. The annual sales target volume of the product after price revision is 280 units. Granite City Products Inc. wants to earn 30% on its sales amount. What is the target operating income?

Answer 1

$35,280

Explanation:

For computation of the target operating income first we need to find out the profit per unit which is shown below:-

Profit per unit = Sales Price × Sales percentage

= $420 × 30%

= $126

Target Operating Income = Profit per unit × Annual Sales Target

= $126 × 280 units

= $35,280

Therefore for computing the target operating income we simply applied the above formula.