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Murphy Productions is a price-taker. The company produces generators in a highly competitive market; thus, it uses target pricing. The current market price is $600 per unit. The company has $18,500,000 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:

Sales volume   65,000    units per year
Variable costs   $500    per unit
Fixed costs   $7,500,000    per year

Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs. If variable costs cannot be reduced, how much reduction in fixed costs will be needed to achieve the desired target?  Show all computations.
Textbook 
Horngren's Financial & Managerial Accounting, The Financial Chapters

Horngren's Financial & Managerial Accounting, The Financial Chapters


Edition: 5th
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