Ace Shoe Co

Multiple Choice

Ace Shoe Co. has fixed costs of $6 million and unit variable costs of $5 per pair. Suppose a consultant tells Ace it can sell 700,000 pairs of shoes, it should seek a profit of $2.5 million, and it should select an appropriate price to meet that 700,000 target. What potential error is the consultant making?

A) assuming that some variable costs are fixed
B) assuming that units sold is independent of price
C) assuming that fixed costs are independent of price
D) assuming that some fixed costs are variable