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

question 180

Multiple Choice

Ortiz Company is a price-taker and uses target pricing. Refer to the following information: $\begin{array}{|l|r|l|}\hline \text { Production volume } & 600,000 & \text { units per year } \\\hline \text { Market price } & \$ 30 & \text { per unit } \\\hline \text { Desired operating income } & 15 \% & \text { of total assets } \\\hline \text { Total assets } & \$ 13,900,000 & \\\hline \text { Variable cost per unit } & \$ 18 & \text { per unit } \\\hline \text { Fixed cost per year } & \$ 5,400,000 & \text { per year } \\\hline\end{array}$ With the current cost structure, Ortiz cannot achieve its profit goals. It will have to reduce either the fixed costs or the variable costs. Assuming that fixed costs cannot be reduced, what are the target variable costs per year? Assume all units produced are sold.

• A) $10,515,000
• B) $10,800,000
• C) $5,400,000
• D) $15,915,000

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The phenomenon by which people tend to develop a preference for things merely because they are familiar with them.

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The tendency to remember information at the beginning of a list or sequence better than information in the middle or at the end.

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Primacy Effect

The phenomenon in which individuals are more likely to remember and give greater importance to information that they encounter first, compared to information presented later.