Trina 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 of the electric wire is $800 per unit.The company has $3,000,000 in average assets,and the desired profit is a return of 9% on assets.Assume all products produced are sold.The company provides the following information:

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

Question

Trina 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 of the electric wire is $800 per unit.The company has $3,000,000 in average assets,and the desired profit is a return of 9% on assets.Assume all products produced are sold.The company provides the following information:

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

Quizplus · Accepted Answer

C)
 11ea8a42_4fba_5f68_8b44_a937bdf3630b_TB5024_00 11ea8a42_4fba_5f69_8b44_076c35dc0d9a_TB5024_00 Variable costs must be reduced by $2,170,000 ($89,900,000 - $87,730,000)to achieve the profit target.

Trina Productions Is a Price-Taker