Meson Productions is a price-taker.Meson produces large spools of electrical wire in a highly competitive market;thus,the company uses target pricing.The current market price of the electric wire is $760 per unit.The company has $3,200,000 in average assets,and the desired profit is a return of 5% on assets.Assume all products produced are sold.The company provides the following information:

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

Question

Meson Productions is a price-taker.Meson produces large spools of electrical wire in a highly competitive market;thus,the company uses target pricing.The current market price of the electric wire is $760 per unit.The company has $3,200,000 in average assets,and the desired profit is a return of 5% on assets.Assume all products produced are sold.The company provides the following information:

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

Quizplus · Accepted Answer

A)
 11ea8a42_4fba_5f65_8b44_4786f41868f6_TB5024_00 11ea8a42_4fba_5f66_8b44_cfed7d123998_TB5024_00 Fixed costs must be reduced by $3,260,000 ($86,700,000 - $83,440,000)to achieve the profit target.

Meson Productions Is a Price-Taker