Donnelley Products sells 2,500 kayaks per year at a sales price of $470 per unit
Donnelley sells in a highly competitive market and uses target pricing. The company has $1,000,000 of assets, and the shareholders wish to make a profit of 16% on assets. Variable cost is $180 per unit and cannot be reduced. Assume all products produced are sold. What are the target fixed costs?
A) $1,175,000
B) $1,015,000
C) $160,000
D) $565,000
D .D)
Revenue at market price (2,500 x $470 ) $1,175,000
Less: Desired profit (1,000,000 x 16%) 160,000
Target full product cost 1,015,000
Less: Variable costs (2,500 x $180 ) 450,000
Target fixed costs $565,000
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