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

question 181

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:

Significant Influences

Major factors or individuals that have a profound impact on one's thoughts, behaviors, or life direction.

Long Periods

Extensive intervals of time that may be significant in understanding behavior patterns, development, or effects.

Positive Illusions

Slightly unrealistic or overly optimistic beliefs about oneself, others, or the world that can have protective mental health benefits.

Stress-Vulnerability

A model suggesting that the development of psychiatric disorders results from the interaction between individual vulnerability (genetic, biological) and external stressors.