Kerr Productions 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 is $800 per unit.The company has $3,000,000 in average assets,and the desired profit is a return of 8% on assets.Assume all products produced are sold.The company provides the following information:

Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs.If fixed costs cannot be reduced,how much reduction in variable cost per unit will be needed to achieve the desired target? (Round your answer to the nearest cent. )

Question

Kerr Productions 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 is $800 per unit.The company has $3,000,000 in average assets,and the desired profit is a return of 8% on assets.Assume all products produced are sold.The company provides the following information:

Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs.If fixed costs cannot be reduced,how much reduction in variable cost per unit will be needed to achieve the desired target? (Round your answer to the nearest cent. )

Quizplus · Accepted Answer

D)
 11ea86ed_2aeb_f885_8b27_8f76a68d73a7_TB3056_00 11ea86ed_2aeb_f886_8b27_216272a981db_TB3056_00 Variable costs per unit must be reduced by $67.40 per unit ($6,740,000 / 100,000 units;$6,740,000 = $86,500,000 - $79,760,000)to achieve the profit target.

Kerr Productions Is a Price-Taker