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

question 13

Multiple Choice

Ortiz Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l | l | l | } \hline \text { Production volume } & \$ 02,000 & \text { units per year } \\\hline \text { Market price } & \$ 30 & \text { per unit } \\\hline \text { Desired operating income } & 17 \% & \text { of total assets } \\\hline \text { Total assets } & \$ 13,800,000 & \\\hline \text { Variable cost per unit } & \$ 20 & \text { per unit } \\\hline \text { Fixed cost per year } & \$ 5,600,000 & \text { per year } \\\hline\end{array}$$ With the current cost structure,Ortiz 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,what are the target variable costs per year? Assume all units produced are sold.

• A) $10,114,000
• B) $12,040,000
• C) $5,600,000
• D) $15,714,000

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Definitions:

Customer Service

The support and advice provided by a company to those people who buy or use its products or services.

Congruency

The degree of alignment or agreement between two or more elements, such as organizational goals and employee behavior or values.

Client Contacts

Interactions or communications between a business and its clients, often critical for developing and maintaining relationships.

Reward Problems

Issues or challenges that arise in the process of recognizing or compensating employees' efforts and achievements.