Maxi Production Is a Price-Taker

question 81

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: 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 reduction in total variable costs will be needed to achieve the profit target?

• A)Reduce variable costs by $1,300,000
• B)Reduce variable costs by $1,050,000
• C)Reduce variable costs by $990,000
• D)Reduce variable costs by $1,200,000

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Definitions:

Dense Irregular Collagenous

A type of connective tissue with collagen fibers arranged in irregular patterns, providing strength and flexibility.

Tendons

Fibrous connective tissues that attach muscles to bones, helping to transfer forces and enable body movements.

Dermis

The dermis is the dense layer of living tissue beneath the epidermis, comprising the real skin and housing blood vessels, sweat glands, and hair follicles.

Brown Fat

A type of body fat that is activated when cold, burning calories to generate heat and help maintain body temperature.