Answer:
The target fixed cost per year for Fowler company is $5,463,000
Explanation:
In this question, we are asked to calculate the target fixed cost for a company assuming that variable costs cannot be reduced and also all units produced are sold.
We start by calculating the revenue generated by the company.
602,000 units were produced and sold at a market price of $30. This means total revenue is;
602,000 * 30 = $18,060,000
We then proceed to subtract the desired operating income from the revenue. From the question, we can identify that the desired operating income is 17% of total asset, with total asset being $13,900,000
Desired operating income = 17/100 * $13,900,000 = $2,363,000
Subtracting desired operating income from recent yields: $18,060,000 - $2,363,000 = $15,697,000
To get the target fixed cost per year, we simply subtract variable cost from the difference.
Summarily, this mathematically means that; target fixed cost per year = Revenue - Desired operating income - variable cost
Variable cost = $17 per 602,000 units per year = 17 * 602,000 = $10,234,000
Target fixed cost per year = $15,697,000 - $10,234,000 = $5,463,000
