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

question 5

Multiple Choice

Ortiz Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l | l | l | } \hline \text { Production volume } & 502,000 & \text { units per year } \\\hline \text { Market price } & \$ 30 & \text { per unit } \\\hline \text { Desired operating income } & 17 \% & \text { of total assets } \\\hline \text { Total assets } & \$ 13,800,000 & \\\hline \text { Variable cost per unit } & \$ 20 & \text { per unit } \\\hline \text { Fixed cost per year } & \$ 5,600,000 & \text { per year } \\\hline\end{array}$$ With the current cost structure,Ortiz cannot achieve its profit goals.It will have to reduce either the fixed costs or the variable costs.Assuming that fixed costs cannot be reduced,what are the target variable costs per year? Assume all units produced are sold.

• A) $10,114,000
• B) $12,040,000
• C) $5,600,000
• D) $15,714,000