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

question 80

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.Refer to the following information:
$$\begin{array} { | l | l | l | } \hline \text { Target full product cost } & \$ 520,000 & \text { per year } \\\hline \text { Actual fixed cost } & \$ 281,000 & \text { per year } \\\hline \text { Actual variable cost } & \$ 2 & \text { per unit } \\\hline \text { Production volume } & 152,000 & \text { units per year } \\\hline\end{array}$$
Actual costs are currently higher than target full product cost.Assuming that fixed costs cannot be reduced,how much is the target variable cost per unit?

• A) $1.85
• B) $1.57
• C) $2.00
• D) $3.42

---

Definitions:

Formal Group

A group formed by an organization to accomplish specific tasks or objectives, characterized by structured roles, responsibilities, and processes.

Building Trust

The development of confidence and reliability in relationships, fostering a sense of security and expectations of positive actions.

Approachable

Being easy to speak to or approach, creating an environment where people feel comfortable to communicate openly.

Virtual Team

A group of individuals who work together from different geographic locations, relying on digital communication technologies to collaborate and achieve common goals.