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

question 117

Essay

Dynamo Company is a price-taker.The company produces generators in a highly competitive market; thus,it uses target pricing.The current market price is $600 per unit.The company has $18,500,000 in average assets,and the desired profit is a return of 8% on assets.Assume all products produced are sold.The company provides the following information:
$$\begin{array} { | l | r | l | } \hline \text { Sales volume } & 65,000 & \text { units per year } \\\hline \text { Variable costs } & \$ 500 & \text { per unit } \\\hline \text { Fixed costs } & \$ 7,500,000 & \text { per year } \\\hline\end{array}$$ Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs.If variable costs cannot be reduced,how much reduction in fixed costs will be needed to achieve the desired target? Show all computations.

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Definitions:

Karl Marx

A 19th-century philosopher, economist, and political theorist known for his critique of capitalism and the development of Marxist theory.

Milton Friedman

An influential American economist and Nobel laureate known for his strong belief in free-market capitalism and minimal government intervention.

Thorstein Veblen

An American economist and sociologist known for his theory of the leisure class and conspicuous consumption.

Consumer Dollar

Refers to the purchasing power of a consumer's money, indicating how much goods or services one dollar can buy.