Allen's Ark sells 2000 canoes per year at a sales price of $450 per unit.Allen's sells in a highly competitive market and uses target pricing.The company has calculated its target full product cost at $740,000 per year.Total variable costs are $330,000 per year and cannot be reduced.Assume all products produced are sold.What are the target fixed costs?

Question

Quizplus · Accepted Answer

Target full product cost = Total fixed cost + Total variable cost per unit * Number of units

Therefore, we can rearrange the formula to find the target fixed cost:

Total fixed cost = Target full product cost - Total variable cost per unit * Number of units

Total variable cost per unit = Total variable cost / Number of units
Total variable cost per unit = $330,000 / 2,000
Total variable cost per unit = $165

Total fixed cost = $740,000 - ($165 * 2,000)
Total fixed cost = $410,000

Therefore, the target fixed cost is $410,000, which is answer choice D.

Allen's Ark Sells 2000 Canoes Per Year at a Sales