Fowler Company Is a Price-Taker and Uses Target Pricing With the Current Cost Structure,Fowler Cannot Achieve Its Profit Goals

question 37

Multiple Choice

Fowler Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l | l | l | } \hline \text { Production volume } & 500,000 & \text { units per year } \\\hline \text { Market price } & \$ 30 & \text { per unit } \\\hline \text { Desired operating income } & 17 \% & \text { of total assets } \\\hline \text { Total assets } & \$ 13,700,000 & \\\hline \text { Variable cost per unit } & \$ 17 & \text { per unit } \\\hline \text { Fixed cost per year } & \$ 5,600,000 & \text { per year } \\\hline\end{array}$$ With the current cost structure,Fowler cannot achieve its profit goals.It will have to reduce either the fixed costs or the variable costs.Assuming that variable costs cannot be reduced,what are the target fixed costs per year? Assume all units produced are sold.

• A) $5,471,000
• B) $5,600,000
• C) $12,400,000
• D) $10,200,000

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Definitions:

Common Stock

A type of equity security that represents ownership in a corporation, entitling holders to vote on corporate matters and receive dividends.

Balance Sheet

A financial statement that provides a snapshot of a company's financial position, including assets, liabilities, and equity, at a specific point in time.

Residual Dividend Policy

A strategy where a company pays dividends to its shareholders only after all its investment and operational costs are met.

Dividend Payout Ratio

The percentage of a company's earnings paid to shareholders in dividends.