Rica Company Is a Price-Taker and Uses Target Pricing With the Current Cost Structure, Rica Cannot Achieve Its Profit

question 38

Multiple Choice

Rica Company is a price-taker and uses target pricing. Refer to the following information: $$\begin{array} { | l | r | l | } \hline \text { Production volume } & 600,000& \text { units per year } \\\hline \text { Market price } & \$ 30 & \text { per unit } \\\hline \text { Desired operating income } & 15 \% & \text { of total assets } \\\hline \text { Total assets } & \$ 13,900,000 & \\\hline \text { Variable cost per unit } & \$ 18 & \text { per unit } \\\hline \text { Fixed cost per year } & \$ 5,600,000 & \text { per year } \\\hline\end{array}$$ 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 unit per year? (Round your answer to the nearest cent.)

• A) $26.53
• B) $9.33
• C) $17.19
• D) $18

Apply the predetermined overhead rate to various scenarios to identify the manufacturing overhead applied.

Recognize the impact of different allocation bases on the calculation of predetermined overhead rates.

Analyze the effects of fixed manufacturing overhead on cost calculation and reporting.

Calculate the predetermined overhead rate based on estimated and capacity levels.

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