Launch Company sells 2500 paddleboards per year at a sales price of $470 per unit.Launch sells in a highly competitive market and uses target pricing.The company has $800,000 of assets,and the shareholders wish to make a profit of 16% on assets.Variable cost is $190 per unit and cannot be reduced.Assume all products produced are sold.What are the target fixed costs?

Question

Quizplus · Accepted Answer

The target profit is 16% of $800,000, which is $128,000. Total revenue is 2500 units * $470 = $1,175,000. Total variable costs are 2500 units * $190 = $475,000. Target fixed costs = Total revenue - Total variable costs - Target profit = $1,175,000 - $475,000 - $128,000 = $572,000.

Launch Company Sells 2500 Paddleboards Per Year at a Sales