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

question 150

Multiple Choice

Acton Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l | r | l | } \hline \text { Production volume } & 602,000 & \text { units per year } \\\hline \text { Market price } & \$ 30 & \text { per unit } \\\hline \text { Desired operating income } & 15 \% & \text { of total assets } \\\hline \text { Total assets } & \$ 13,800,000 & \\\hline \text { Variable cost per unit } & \$ 18 & \text { per unit } \\\hline \text { Fixed cost per year } & \$ 5,500,000 & \text { per year } \\\hline\end{array}$$ With the current cost structure,Acton 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) $5,154,000
• B) $5,500,000
• C) $12,560,000
• D) $10,836,000

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Definitions:

Disjunctive

Describes a relationship or situation where elements are disconnected or distinct from one another.

Compensatory

Related to making up for a deficiency or lack in one area by excelling or overperforming in another area.

Köhler Effect

A phenomenon in group dynamics where less capable members increase their effort when working collectively, motivated by the desire to contribute to the group's success.

Conjunctive Task

A task in which the performance of the group depends on the least capable member, requiring all members to contribute for success.