Meson Production Is a Price-Taker Currently the Cost Structure Is Such That the Company Cannot

question 82

Multiple Choice

Meson Production is a price-taker. They produce large spools of electrical wire in a highly competitive market, and so they practice target pricing. The current market price is $800 per unit. The company has $3,000,000 in assets and shareholders expect a return of 6% on assets. The company provides the following information: $$\begin{array} { | l | r |r| } \hline \text { Sales volume } & 100,000 &\text { units per year } \\\hline \text { Variable costs } & \$ 700& \text { per unit } \\\hline \text { Fixed costs } & \$ 12,000,000 &\text { per year } \\\hline\end{array}$$ Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs. If fixed costs cannot be reduced, how much reduction in variable cost per unit will be needed to hit the profit target?

• A) reduction in variable cost per unit by $120
• B) reduction in variable cost per unit by $1.80
• C) reduction in variable cost per unit by $20.30
• D) reduction in variable cost per unit by $21.80

---

Definitions:

Trade

The exchange of goods or services between individuals, businesses, or countries.

Lower Opportunity Cost

The advantage of choosing an option that has a relatively smaller loss of potential gain from other alternatives.

Trade

The exchange of goods and services between people or entities, often involving the transfer of money.

Goods

Tangible products that satisfy human wants and provide utility, which people buy and use.