Question

Well-Bread Grain Company is a price-taker and uses target pricing. The company has just done an analysis of its revenues, costs, and desired profits and has calculated its target full product cost. Assume all products produced are sold. Refer to the following information:

Target full product cost $500,000 per year
Actual fixed cost $280,000 per year
Actual variable cost $2 per unit
Production volume 150,000 units per year

Actual costs are currently higher than target full product cost. Assume all products produced are sold.
Assuming that variable costs are dependent on commodity prices and cannot be reduced, what is the target fixed cost?

Answer 1

Answer:

The target fixed cost are $200,000

Explanation:

According to the given data we have the following:

Target full product costs= $ 500,000

Production volume= 150,000 units

Actual variable cost= $2 per unit

Therefore, Variable costs= 150,000 units × $ 2 = $ 300,000

In order to calculate the the target fixed cost we would have to make the following calculation:

Target fixed cost=Target full product costs-Variable costs

Target fixed cost=$ 500,000-$ 300,000= $ 200,000

The target fixed cost are $200,000