Ignite Products Is a Price-Taker If Fixed Costs Cannot Be Reduced,how Much Reduction in Variable

question 188

Multiple Choice

Ignite Products is a price-taker.The company produces large spools of electrical wire in a highly competitive market; thus,it uses target pricing.The current market price of the electric wire is $700 per unit.The company has $3,000,000 in average assets,and the desired profit is a return of 8% on assets.Assume all products produced are sold.The company provides the following information: $$\begin{array} { | l | l | l | } \hline \text { Sales volume } & 120,000 & \text { units per year } \\\hline \text { Variable costs } & \$ 660 & \text { per unit } \\\hline \text { Fixed costs } & \$ 14,000,000 & \text { per year } \\\hline\end{array}$$ If fixed costs cannot be reduced,how much reduction in variable costs will be needed to achieve the desired target?

• A) $240,000
• B) $14,000,000
• C) $9,440,000
• D) $79,200,000

---

Definitions:

Normal Profit

The payment made by a firm to obtain and retain entrepreneurial ability; the minimum income that entrepreneurial ability must receive to induce entrepreneurs to provide their entrepreneurial ability to a firm; the level of accounting profit at which a firm generates an economic profit of zero after paying for entrepreneurial ability.

Entrepreneurial Talent

The unique skills and abilities possessed by individuals that enable them to innovate, start new businesses, and drive economic growth.

Business Cycle

Recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases.

Corporate Profits

The surplus income of corporations after paying all expenses, including operational expenses, salaries, and taxes.