Ignite Products is a price-taker.The company produces large spools of electrical wire in a highly competitive market;thus,it uses target pricing.The current market price of the electric wire is $800 per unit.The company has $3,100,000 in average assets,and the desired profit is a return of 7% on assets.Assume all products produced are sold.The company provides the following information:

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

Question

Ignite Products is a price-taker.The company produces large spools of electrical wire in a highly competitive market;thus,it uses target pricing.The current market price of the electric wire is $800 per unit.The company has $3,100,000 in average assets,and the desired profit is a return of 7% on assets.Assume all products produced are sold.The company provides the following information:

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

Quizplus · Accepted Answer

C)
 11ea86ed_2aeb_5c42_8b27_3dfb38b3cac4_TB3056_00 11ea86ed_2aeb_8353_8b27_4f2f7163460c_TB3056_00 Variable costs must be reduced by $5,217,000 ($85,000,000 - $79,783,000)to achieve the profit target.

Ignite Products Is a Price-Taker