Gotham Products Is a Price-Taker and Uses Target Pricing Actual Costs Are Currently Higher Than Target Full Product Cost

question 29

Multiple Choice

Gotham Products is a price-taker and uses target pricing. Gotham has just done an analysis of their revenues, costs and desired profits, and has calculated its target full product cost. Please refer to the following information: $$\begin{array} { | l | r | r|} \hline \text { Target full product cost } & \$ 500,000& \text { per year } \\\hline \text { Actual fixed cost } & \$ 280,000 &\text { per year } \\\hline \text { Actual variable cost } & \$ 2& \text { per unit } \\\hline \text { Production volume } & 150,000 &\text { units per year } \\\hline\end{array}$$ Actual costs are currently higher than target full product cost.
- Assuming that fixed costs cannot be reduced, how much is the target variable cost per unit?

• A) $1.20
• B) $1.47
• C) $1.33
• D) $3.33

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Definitions:

Federal Outlays

Government spending or expenditures, including on services, social security, defense, and interest on debt.

Stock Variable

A measurement at a specific point in time, such as the amount of money in a bank account or stock of goods.

Flow Variable

A variable that is measured over a specific period of time, representing dynamic elements of an economy like income or spending.

Federal Budget Deficit

The deficit occurring when government spending surpasses its income in a specific fiscal year.