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

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Definitions:

Repriced Option

An adjusted option where the exercise price has been changed, typically lowered, as a way to make the option more valuable or attractive.

Fair Value

An estimate of the market value of an asset or liability based on current market prices or valuations, reflective of what a willing buyer would pay a willing seller in an arm's length transaction.

Remuneration Expense

Represents the total cost incurred by an organization for paying its employees, including wages, salaries, bonuses, and benefits.

Vesting Period

The period of time before an employee gains unconditional ownership of certain benefits or assets, such as stock options or employer contributions to a retirement plan.