Meson Production is a price-taker.It produces large spools of electrical wire in a highly competitive market,so it practises target pricing.The current market price of the electric wire is $800 per unit.The company has $3,100,000 in assets and its shareholders expect a return of 9% on assets.The company provides the following information:
$$\begin{array} { | l | l | l | }
\hline \text { Sales volume } & 120,000 & \text { units per year } \
\hline \text { Variable costs } & \$ 730 & \text { per unit } \
\hline \text { Fixed costs } & \$ 14,000,000 & \text { per year } \
\hline
\end{array}$$
If fixed costs cannot be reduced,how much reduction in variable costs will be needed to achieve the profit target?

Question

Meson Production is a price-taker.It produces large spools of electrical wire in a highly competitive market,so it practises target pricing.The current market price of the electric wire is $800 per unit.The company has $3,100,000 in assets and its shareholders expect a return of 9% on assets.The company provides the following information:
$$\begin{array} { | l | l | l | } 
\hline \text { Sales volume } & 120,000 & \text { units per year } \
\hline \text { Variable costs } & \$ 730 & \text { per unit } \
\hline \text { Fixed costs } & \$ 14,000,000 & \text { per year } \
\hline
\end{array}$$
If fixed costs cannot be reduced,how much reduction in variable costs will be needed to achieve the profit target?

Quizplus · Accepted Answer

The Answer of Meson Production is a price-taker.It produces large spools of electrical wire in a highly competitive market,so it practises target pricing.The current market price of the electric wire is $800 per unit.The company has $3,100,000 in assets and its shareholders expect a return of 9% on assets.The company provides the following information:
$$\begin{array} { | l | l | l | } 
\hline \text { Sales volume } & 120,000 & \text { units per year } \
\hline \text { Variable costs } & \$ 730 & \text { per unit } \
\hline \text { Fixed costs } & \$ 14,000,000 & \text { per year } \
\hline
\end{array}$$
If fixed costs cannot be reduced,how much reduction in variable costs will be needed to achieve the profit target?

Meson Production Is a Price-Taker If Fixed Costs Cannot Be Reduced,how Much Reduction in Variable