Rica Company Is a Price-Taker and Uses a Target-Pricing Approach

question 8

Multiple Choice

Rica Company is a price-taker and uses a target-pricing approach. Refer to the following information: $$\begin{array} { | l | r | l | } \hline\text { Production volume } & 600,000 & \text { units per year } \\\hline \text { Market price } & \$ 30 & \text { per unit } \\\hline \text { Desired operating income } & 15 \% & \text { of total assets } \\\hline \text { Total assets } & \$ 13,900,000 & \\\hline\end{array}$$ How much is the target full product cost in total for the year? Assume all units produced are sold.

• A) $18,000,000
• B) $15,915,000
• C) $13,900,000
• D) $2,085,000

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Definitions:

Loss Carryback

An accounting technique that allows businesses to apply current year’s net operating losses to previous years’ profits to reduce tax liabilities.

Income Tax Benefit

A reduction in income tax payments, which can result from deductions, exemptions, or credits, often recognizing benefits from losses or deductions from previous years.

Income Tax Expense

The amount of money a company or individual owes to the government based on earned income, reflecting the tax rate and taxable earnings for a fiscal period.

Income Tax Rate Change

A modification in the percentage that individuals or corporations are required to pay to the government from their income.