Electron Manufacturing is a price-taker.Electron 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 $760 per unit.The company has $3,200,000 in average assets,and the desired profit is a return of 5% on assets.Assume all products produced are sold.The company provides the following information:

If variable costs cannot be reduced,how much reduction in fixed costs will be needed to achieve the profit target?

Question

Electron Manufacturing is a price-taker.Electron 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 $760 per unit.The company has $3,200,000 in average assets,and the desired profit is a return of 5% on assets.Assume all products produced are sold.The company provides the following information:

If variable costs cannot be reduced,how much reduction in fixed costs will be needed to achieve the profit target?

Quizplus · Accepted Answer

A)
 11ea86ed_2aea_e70f_8b27_29e79f6eceb3_TB3056_00 11ea86ed_2aea_e710_8b27_5f5a8d3a76dd_TB3056_00 Fixed costs must be reduced by $1,160,000 ($84,600,000 - $83,440,000)to achieve the profit target.

Electron Manufacturing Is a Price-Taker