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8 years ago
Dell Productions 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 is $825 per unit. The company has $3,100,000 in average assets, and the desired profit is a return of 6% on assets. Assume all products produced are sold. The company provides the following information:

Sales volume   100,000    units per year
Variable costs   $700    per unit
Fixed costs   $13,000,000    per year

Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs. If fixed costs cannot be reduced, how much reduction in variable cost per unit will be needed to achieve the desired target? (Round your answer to the nearest cent.)
A) reduction in variable cost per unit by $700.00
B) reduction in variable cost per unit by $5.00
C) reduction in variable cost per unit by $6.86
D) reduction in variable cost per unit by $125.00
Textbook 
Horngren's Financial & Managerial Accounting, The Financial Chapters

Horngren's Financial & Managerial Accounting, The Financial Chapters


Edition: 5th
Authors:
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8 years ago
Will mark this subject solved, thanks
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