Question

UR Safe Systems installs home security systems. Two of its systems, the ICU 100 and the ICU 900, have these characteristics:

Design SpecificationsICU 100ICU 900Cost DataVideo cameras 3  1 $105/eaVideo monitors 3  3 $45/eaMotion detectors 3  6 $10/eaFloodlights 1  5 $4/eaAlarms 3  2 $10/eaWiring 680ft. 1,080ft.$0.1/ft.Installation 14hr 24hr$10/hr

The ICU 100 sells for $830 installed, and the ICU 900 sells for $1,540 installed.

Required:

1. What are the current profit margin percentages on both systems?

2. UR Safe’s management believes that it must drop the price on the ICU 100 to $770 and on the ICU 900 to $1,410 to remain competitive in the market. Recalculate profit margin percentages for both products at these price levels and then compute the target cost needed for each product to maintain the current profit margin percentages.

(For all requirements, round your percentage answers to 2 decimal places and other answers to the nearest whole dollar amount.)

	ICU 100 ICU 900 1. Current profit margin % % 2. Profit margin % % Target cost

Answer 1

		ICU 100	ICU 900
1.	Current profit margin	13.01%	55.32%
2.	Profit margin	6.23%	51.21%
	Target cost	$669.82	$629.99

(1)

	ICU 100	ICU 900
Video cameras	(3 * $105) =$315	(1 * $105) =$105
Video monitors	(3 * $45) =$135	(3 * $45) =$135
Motion detectors	(3 * $10) =$30	(6 * $10) =$60
Floodlights	(1 * $4) =$4	(5 * $4) =$20
Alarms	(3 * $10) =$30	(2 * $10) =$20
Wiring	(680 ft * $0.1) =$68	(1080 ft * $0.1) =$108
Installation	(14 hr * $10) =$140	(24 hr * $10) =$240
Total cost (a)	$722	$688
Selling Price (b)	$830	$1540
Profit (c = b - a)	$108	$852
Current Profit Margin (c/b) * 100	($108/$830) * 100 =13.01%	($852/$1540) * 100 =55.32%

(2)

	ICU 100	ICU 900
Total cost (a)	$722	$688
New Selling Price (b)	$770	$1410
Profit (c = b - a)	$48	$722
Profit Margin (c/b) * 100	($48/$770) * 100 =6.23%	($722/$1410) * 100 =51.21%

Target Cost:-

	ICU 100	ICU 900
New Selling Price (a)	$770	$1410
Current Profit Margin (b)	13.01%	55.32%
Profit (c= a*b)	($770 * $13.01%) =$100.18	($1410 * 55.32%) =$780.01
Target Cost (a – c)	$669.82	$629.99