WellminusBread Grain Company is a priceminustaker and uses target pricing. The company has just done an analysis of its revenues, costs, and desired profits and has calculated its target full product cost. Assume all products produced are sold. Refer to the following information:

Target full product cost $500, 000 per year

Actual fixed cost $280, 000 per year

Actual variable cost $3 per unit

Production volume 150, 000 units per year

Actual costs are currently higher than target full product cost. Assume all products produced are sold. Assuming that variable costs are dependent on commodity prices and cannot be reduced, what is the target fixed cost?

(A) $450,000

(B) $220,000

(C) $50,000

(D) $500,000

Question

Business

Nancy Owens

22 July, 08:42

WellminusBread Grain Company is a priceminustaker and uses target pricing. The company has just done an analysis of its revenues, costs, and desired profits and has calculated its target full product cost. Assume all products produced are sold. Refer to the following information:

Target full product cost $500, 000 per year

Actual fixed cost $280, 000 per year

Actual variable cost $3 per unit

Production volume 150, 000 units per year

Actual costs are currently higher than target full product cost. Assume all products produced are sold. Assuming that variable costs are dependent on commodity prices and cannot be reduced, what is the target fixed cost?

(A) $450,000

(B) $220,000

(C) $50,000

(D) $500,000

+1

Answers (1)

Know the Answer?

Adolfo Leonard · Answer 1

The correct answer is C.

Explanation:

Giving the following information:

Target full product cost $500, 000 per year

Actual fixed cost $280, 000 per year

Actual variable cost $3 per unit

Production volume 150, 000 units per year

We can't lower the variable cost. Therefore, the cost reduction must be on fixed costs.

Target cost = 500,000

Variable cost = $3*150,000 units = 450,000

Target fixed costs = 500,000 - 450,000 = $50,000