Outrigger Leisure Products sells 2200 kayaks per year at a price of $450 per unit.Outrigger sells in a highly competitive market and uses target pricing.The company has $1,000,000 of assets and the shareholders wish to make a profit of 17% on assets.Fixed costs are $450,000 per year and cannot be reduced.Assume all products produced are sold.What are the target variable costs?

Question

Quizplus · Accepted Answer

To find the target variable costs, first calculate the target profit: 17% of $1,000,000 = $170,000. Total revenue is 2200 kayaks * $450 = $990,000. Subtract fixed costs ($450,000) and target profit ($170,000) from total revenue to find target variable costs: $990,000 - $450,000 - $170,000 = $370,000.

Outrigger Leisure Products Sells 2200 Kayaks Per Year at a Price