Battista Stationery Company is a price - taker and uses target pricing. The comp

Question

Battista Stationery Company is a price - taker and uses target pricing. The company has completed an analysis of its revenues, costs, and desired profits and has calculated its target full product cost. Refer to the following information:

Target full product cost $500, 000 per year

Actual fixed cost $280, 000 per year

Actual variable cost                       $3 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?

A. $450, 000

B. $220, 000

C. $50, 000

D. $500, 000

Explanation / Answer

Actual cost=Variable cost+Fixed cost

=$150,000*3+$280,000=$730,000

Actual costs are higher than target full product cost

If the variable costs are dependent on commodity prices and cannot be redused

so Target fixed cost is $500,000

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