Battista Stationery Company is a price-taker and uses target pricing.The company has completed an analysis of its revenues,costs,and desired profits and has calculated its target full product cost.Refer to the following information: $$\begin{array} { | l | r | l | }
\hline \text { Target full product cost } & \$ 600,000 & \text { per year } \
\hline \text { Actual fixed cost } & \$ 280,000 & \text { per year } \
\hline \text { Actual variable cost } & \$ 3 & \text { per unit } \
\hline \text { Production volume } & 150,000 & \text { units per year } \
\hline
\end{array}$$ 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?

Question

Battista Stationery Company is a price-taker and uses target pricing.The company has completed an analysis of its revenues,costs,and desired profits and has calculated its target full product cost.Refer to the following information: $$\begin{array} { | l | r | l | } 
\hline \text { Target full product cost } & \$ 600,000 & \text { per year } \
\hline \text { Actual fixed cost } & \$ 280,000 & \text { per year } \
\hline \text { Actual variable cost } & \$ 3 & \text { per unit } \
\hline \text { Production volume } & 150,000 & \text { units per year } \
\hline
\end{array}$$ 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?

Quizplus · Accepted Answer

The target full product cost is $600,000. With variable costs of $3 per unit for 150,000 units, the total variable cost is $450,000. Therefore, the target fixed cost is $600,000 - $450,000 = $150,000.

Battista Stationery Company Is a Price-Taker and Uses Target Pricing