Question
having issues with 35
wile ih a highly pany has $2,000,000 in assets and shareholders expect a return of 5% on y practice target pricing. The current market price is $800 per unit. company provides the following information: assets. The Market 2,o00, Sales volume Variable costs Fixed costs 90,000 $680 $12,000,000 per year Per unit Per year lunc 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 total variable costs will be needed to achieve the profit target? A) Reduce variable costs by $1,200,000 QReduce variable costs by $1,300,000 B) Reduce variable costs by $990,000 D) Reduce variable costs by $1,050,000 35) The Squash Company has 5,500 machine hours available annually to manufacture racquets. The following information is available for the two different racquets produced by Squash: ro $200 80 Unit sales price Unit variable costs Annual demand Machine time Mid Unit sales price Unit variable costs Annual demand Machine time $120 2,000 units 2 hours per unit $120 $66 ,000 units 1.25 hours per unit ? How many units of each racquet should be manufactured for Squash to maximize its operating income? A) 2,000 units of Pro and 4,000 units of Mid C) 4,000 units of Mid and 500 units of Pro B) 2,000 units of Pro and 1,200 units of Mid D) 4,000 units of Mid and 250 units of Pro 7
Explanation / Answer
Answer is D. 4000 units of Mid and 250 units of Pro Explanation. PRO MID Seling pricec 200 120 Variable cost 120 66 Contribution margin 80 54 Divide Machine hours 2 1.25 Contribution per MH 40 43.2 Ranking II I Total Machine Houors 5500 Less: MH used in Mid (4000 units @1.25) 5000 MH remaining fro PRO 500 Number of units of Pro (500/2) 250 units
