Meson Production Is a Price-Taker Currently the Cost Structure Is Such That the Company Cannot

question 129

Multiple Choice

Meson 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 $3,000,000 in assets and shareholders expect a return of 6% on assets. The company provides the following information: $$\begin{array} { | l | r | l | } \hline \text { Sales volume } & 100,000 & \text { units per year } \\\hline \text { Variable costs } & \$ 700 & \text { per unit } \\\hline \text { Fixed costs } & \$ 12,000,000 & \text { per year } \\\hline\end{array}$$ 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 variable cost per unit will be needed to hit the profit target?

• A) reduction in variable cost per unit by $120
• B) reduction in variable cost per unit by $1.80
• C) reduction in variable cost per unit by $20.30
• D) reduction in variable cost per unit by $21.80

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Definitions:

Flow Of Authority

The structured path along which formal power is passed down within an organization, dictating who reports to whom.

Mechanistic Approach

A perspective that views systems, including organizations, as machine-like, with rigid structures and clearly defined functions.

Organizational Development

A planned, organization-wide effort to increase an organization's effectiveness and viability, often involving interventions in its processes, operations, or culture.

Sociotechnical System

A method for designing sophisticated organizational work that acknowledges the relationship between individuals and technology in the workplace.