Dell 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 is $800 per unit.The company has $3,100,000 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:

Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs.If fixed costs cannot be reduced,how much reduction in variable cost per unit will be needed to achieve the desired target? (Round your answer to the nearest cent. )

Question

Dell 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 is $800 per unit.The company has $3,100,000 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:

Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs.If fixed costs cannot be reduced,how much reduction in variable cost per unit will be needed to achieve the desired target? (Round your answer to the nearest cent. )

Quizplus · Accepted Answer

D)
 11ea8a42_4fba_867b_8b44_394655d4da80_TB5024_00 11ea8a42_4fba_867c_8b44_c1799009a10b_TB5024_00 Variable costs per unit must be reduced by $72.79 per unit ($7,279,000 / 100,000 units;$7,279,000 = $87,000,000 - $79,721,000)to achieve the profit target.

Dell Productions Is a Price-Taker