Maxi Production Is a Price-Taker -
Currently the Cost Structure Is Such That the Company

question 66

Multiple Choice

Maxi Production is a price-taker. They produce large spools of electrical wire in a highly competitive market, and so they practice target pricing. The current market price is $800 per unit. The company has $2,000,000 in assets and shareholders expect a return of 5% on assets. The company provides the following information:
$$\begin{array} { | l | r | r | } \hline \text { Sales volume } & 90,000 & \text { Units per year } \\\hline \text { Variable costs } & \$ 680 & \text { Per unit } \\\hline \text { Fixed costs } & \$ 12,000,000 & \text { Per year } \\\hline\end{array}$$
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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 does the variable cost per unit need to be in order to hit the profit goal? (Please round to the nearest cent.)

• A) $675.67 per unit
• B) $642.00 per unit
• C) $665.56 per unit
• D) $694.20 per unit

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Definitions:

Return the Goods

The process of a buyer sending previously purchased products back to the seller, usually under conditions specified in the return policy.

Section 2-608

A provision within the Uniform Commercial Code that allows buyers to revoke acceptance of goods under certain conditions if the goods fail to conform substantially to the contract.

Right to Revoke

The legal ability to cancel or withdraw from a contract or agreement within a certain period of time.

Sales Contracts

Legal agreements between buyers and sellers detailing the terms and conditions of a sale, including price, delivery, and product specifications.