Origami Company Is a Price-Taker and Uses Target Pricing -
with the Current Cost Structure, Origami Cannot Achieve Its

Origami Company is a price-taker and uses target pricing. Please refer to the following information:
$$\begin{array} { | l | r | r | } \hline \text { Production volume } & 500,000 & \text { Units per year } \\\hline \text { Narket price } & \$ 24.00 & \text { Per unit } \\\hline \text { Pesired aperating profit } & 12 \% & \text { Of total assets } \\\hline \text { Tatal assets } & \$ 12,500,000 & \\\hline \text { Varinble edst per unit } & \$ 17.00 & \text { Per unit } \\\hline \text { Fixed cost per year } & \$ 3,000,000 & \text { Per year } \\\hline\end{array}$$
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With the current cost structure, Origami cannot achieve its profit goals. It will have to reduce either the fixed costs or the variable costs. Assuming that fixed costs CANNOT be reduced, how much will the target variable costs per year be?

A) $7,500,000
B) $12,500,000
C) $2,500,000
D) $8,000,000

Correct Answer:

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