Meson Production Is a Price-Taker

Multiple Choice

Meson Production is a price-taker. They produce large spools of electrical wire in a highly competitive market, and so they practice target pricing. The current market price is $800 per unit. The company has $3,000,000 in assets and shareholders expect a return of 6% on assets. The company provides the following information: 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 variable cost per unit will be needed to hit the profit target?

A) reduction in variable cost per unit by $120
B) reduction in variable cost per unit by $1.80
C) reduction in variable cost per unit by $20.30
D) reduction in variable cost per unit by $21.80