Rica Company Is a Price-Taker and Uses Target Pricing

question 77

Multiple Choice

Rica Company is a price-taker and uses target pricing. Please refer to the following information: With the current cost structure, Rica 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, how much will be the target variable costs per year?

• A)$10,315,000
• B)$5,115,000
• C)$5,600,000
• D)$5,200,000

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Definitions:

Break-even Point

The point at which total revenue equals total costs and expenses, resulting in neither profit nor loss.

Dollar Sales

The total value of sales made by a business within a certain period, measured in dollars.

Selling Price

The amount of money for which a product or service is sold to the customer.

Net Operating Income

The total income from operations of a company before taxes and interest, calculated by subtracting operating expenses from gross profit.