Gotham Products Is a Price-Taker and Uses Target Pricing Actual Costs Are Currently Higher Than Target Full Product Cost

question 78

Multiple Choice

Gotham Products is a price-taker and uses target pricing. Gotham has just done an analysis of their revenues, costs and desired profits, and has calculated its target full product cost. Please refer to the following information: $\begin{array}{|l|c|r|}\hline\text { Target full product cost } & \$ 500,000& \text { per year } \\\hline \text { Actual fixed cost } & \$ 280,000 &\text { per year } \\\hline \text { Actual variable cost } & \$ 2 &\text { per unit } \\\hline \text { Production volume } & 150,000 &\text { units per year }\\\hline\end{array}$
Actual costs are currently higher than target full product cost. Assuming that variable costs are dependent on commodity prices and cannot be reduced, how much is the target fixed cost?

• A) $180,000
• B) $300,000
• C) $200,000
• D) $500,000

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Definitions:

Maximise Profitability

The strategic approach businesses use to increase their profits to the highest possible level by optimizing operations, costs, and revenues.

Available Hours

The total number of hours in a given period that can be utilized for productive work or services.

Predatory Pricing

A strategy where a business sets very low prices with the intent to drive competitors out of the market or discourage new entries.

Market Prices

The current price at which goods or services can be bought or sold in the marketplace, influenced by supply and demand dynamics.