Gotham Products Is a Price-Taker and Uses Target Pricing Actual Costs Are Currently Higher Than Target Full Product Cost

question 28

Multiple Choice

Gotham Products is a price-taker and uses target pricing.Gotham has just done an analysis of their revenues,costs and desired profits,and has calculated its target full product cost.Please refer to the following information:
$$\begin{array} { | l | l | l | } \hline \text { Target full product cost } & \$ 510,000 & \text { per year } \\\hline \text { Actual fixed cost } & \$ 280,000 & \text { per year } \\\hline \text { Actual variable cost } & \$ 2 & \text { per unit } \\\hline \text { Production volume } & 152,000 & \text { units per year } \\\hline\end{array}$$
Actual costs are currently higher than target full product cost.Assuming that fixed costs cannot be reduced,how much is the target variable cost?

• A) $230,000
• B) $280,000
• C) $304,000
• D) $510,000

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Definitions:

Reverse Stock Split

A process by which a company reduces the total number of its outstanding shares to increase the per share price without changing the company's overall market capitalization.

Stock Split

An action by a corporation in which it splits its current shares into more shares, aiming to increase the trading liquidity of those shares.

Market Price

Market price is the current price at which an asset or service can be bought or sold in an open and competitive market.

Book Value

The net value of a company's assets minus its liabilities, as recorded on its balance sheet.