Meson Production Is a Price-Taker If Fixed Costs Cannot Be Reduced, How Much Reduction in Electrical

question 144

Multiple Choice

Meson Production is a price-taker. It produces large spools of electrical wire in a highly competitive market, so it practices target pricing. The current market price of the electric wire is $800 per unit. The company has $3,000,000 in assets and its shareholders expect a return of 6% on assets. The company provides the following information: $$\begin{array} { | l | r | l | } \hline \text { Sales volume } & 100,000 & \text { units per year } \\\hline \text { Variable costs } & \$ 700&\text { per unit } \\\hline \text { Fixed cost } & \$ 120,000,000 &\text { per year } \\\hline\end{array}$$
If fixed costs cannot be reduced, how much reduction in variable costs will be needed to achieve the profit target?

• A) $180,000
• B) $12,000,000
• C) $2,180,000
• D) $4,200,000

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