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

---

Definitions:

Land Improvements

Enhancements made to land such as landscaping, fencing, and lighting that increase its value, excluding the cost of the land itself.

Buildings

Physical structures owned or used by a business for its operations, considered as a fixed asset on the balance sheet.

Machinery and Equipment

Long-term assets used in the operation of a business, typically for manufacturing, processing, or office operations.

Land

A natural resource that refers to the earth's surface not covered by water, which can be used for agriculture, construction, or as an investment.