Pueblo Products Is a Price-Taker and Uses Target Pricing -
Actual Costs Are Currently Higher Than Target Full Cost

question 101

Multiple Choice

Pueblo Products is a price-taker and uses target pricing. Pueblo has just done an analysis of their revenues, costs and desired profits, and has calculated its target full cost. Please refer to the following information:
$$\begin{array} { | l | r | r | } \hline \text { Target full cost } & \$ 400,000 & \text { Per year } \\\hline \text { Artual fixed cost } & \$ 160,000 & \text { Per year } \\\hline \text { Artual variable cost } & \$ 1.00 & \text { Per unit } \\\hline \text { Praduction volume } & 250,000 & \text { Units per year } \\\hline\end{array}$$
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Actual costs are currently higher than target full cost. Assuming that fixed costs are predominantly related to depreciation expense and CANNOT be reduced, how much is the target variable cost?

• A) $200,000 per year
• B) $250,000 per year
• C) $240,000 per year
• D) $214,000 per year

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Definitions:

Nitrogen

A chemical element with symbol N and atomic number 7, essential for all living organisms.

Denitrification

Conversion of nitrates or nitrites to nitrogen gas.

Nitrogen Fixation

The process by which certain microorganisms convert atmospheric nitrogen into a form that can be used by plants to synthesize proteins and nucleic acids.

Ammonification

Ammonium-producing process of decomposition.