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

question 3

Multiple Choice

Rica Company is a price-taker and uses target pricing. Refer to the following information: $$\begin{array} { | l | r | r|} \hline \text { Production volume } & 600,000& \text { units per year } \\\hline \text { Market price } & \$ 30& \text { per unit } \\\hline \text { Desired operating income } & 15 \% &\text { of total assets } \\\hline \text { Total assets } & \$ 13,900,000 \\\hline \text { Variable cost per unit } & \$ 18 &\text { per unit } \\\hline \text { Fixed cost per year } & \$ 5,600,000 &\text { per year } \\\hline\end{array}$$ With the current cost structure, Rica 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, how much will be the target variable costs per unit per year? (Round your answer to the nearest cent.)

• A) $26.53
• B) $9.33
• C) $17.19
• D) $18

---

Definitions:

Nomothetic Approach

A research approach focused on establishing general laws and principles that apply to all individuals, rather than examining the unique aspects of individuals.

Experiential World

The subjective realm of individual experience and perception, shaping one’s reality through personal interactions and interpretations of their environment.

Positive Self-regard

A person's ability to hold themselves in esteem and have a positive view of themselves, independent of external validation.

Positive Regard

An attitude of acceptance and respect towards others, regardless of their actions or beliefs.