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

question 160

Multiple Choice

Fowler Company is a price-taker and uses target pricing.Refer to the following information: $\begin{array}{|l|r|l|}\hline \text { Production volume } & 601,000 & \text { units per year } \\\hline \text { Market price } & \$ 30 & \text { per unit } \\\hline \text { Desired operating income } & 17 \% & \text { of total assets } \\\hline \text { Total assets } & \$ 13,800,000 & \\\hline \text { Variable cost per unit } & \$ 18 & \text { per unit } \\\hline \text { Fixed cost per year } & \$ 5,500,000 & \text { per year }\\\hline\end{array}$ With the current cost structure,Fowler cannot achieve its profit goals.It will have to reduce either the fixed costs or the variable costs.Assuming that variable costs cannot be reduced,what are the target fixed costs per year? Assume all units produced are sold.

• A)$4,866,000
• B)$5,500,000
• C)$12,530,000
• D)$10,818,000

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Definitions:

Raw Materials

The basic materials and components required in the manufacturing process to produce finished goods.

Production

The process of creating goods and services using labor, machinery, and raw materials.

Finished Goods

Items that have finished being manufactured and are prepared for purchase by consumers.

Inventory

The raw materials, work-in-progress, and finished goods that a company holds for the purpose of sale in the future.