Meson Productions is a price-taker
Meson produces large spools of electrical wire in a highly competitive market; thus, the company uses target pricing. The current market price of the electric wire is $770 per unit. The company has $3,100,000 in average assets, and the desired profit is a return of 4% on assets. Assume all products produced are sold. The company provides the following information:
Sales volume 110,000 units per year
Variable costs $680 per unit
Fixed costs $14,000,000 per year
If variable costs cannot be reduced, how much reduction in fixed costs will be needed to achieve the profit target?
A) $4,224,000
B) $14,000,000
C) $4,100,000
D) $14,124,000
A .A)
Current variable costs ($680 per unit) $74,800,000
Plus: Fixed costs 14,000,000
Full product cost $88,800,000
Total sales ($770 per unit) $84,700,000
Less: Target profit ($3,100,000 x 4%) 124,000
Target cost $84,576,000
Fixed costs must be reduced by $4,224,000 ($88,800,000 - $84,576,000 ) to achieve the profit target.
You might also like to view...
When common stock with a par value is sold for a price that exceeds par value, the Common Stock account is credited for the cash proceeds received from the sale of the shares
Indicate whether the statement is true or false
Goods in transit shipped FOB shipping point should be included in the seller's ending inventory
Indicate whether the statement is true or false
The informing objective in promotion is simply a matter of educating the consumer about the firm's product.
Answer the following statement true (T) or false (F)
_____ is a common method to manage expatriate compensation in which the organization continues to pay the individual at a rate equivalent to their home country salary.
A. Split-pay approach B. Localization approach C. Balance sheet approach D. Negotiation approach E. Equalization approach