Campbell Manufacturing Incurs Annual Fixed Costs of $250,000 in Producing

question 115

Multiple Choice

Campbell Manufacturing incurs annual fixed costs of $250,000 in producing and selling a single product.Estimated unit sales are 125,000.An after-tax income of $75,000 is desired by management.The company projects its income tax rate at 40 percent.What is the maximum amount that Campbell can expend for variable costs per unit and still meet its profit objective if the sales price per unit is estimated at $6?

• A)$3.37
• B)$3.59
• C)$3.00
• D)$3.70

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Definitions:

Marginal Revenue

The enhanced income from disposing of one more unit of a product or service.

Perfect Price Discrimination

The practice of charging each customer the maximum they would be willing to pay for a good or service, capturing all consumer surplus.

Willingness To Pay

The maximum amount an individual is prepared to spend on a good or service, reflecting the value they assign to it.

Entry Barriers

Factors that prevent or hinder the ability of a new firm to enter and compete in an industry.