Unable to reduce its total fixed costs

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Reference no: EM131205840

Base Line, Inc. makes tennis balls. The company can produce up to 500,000 cans of balls per year. Current annual production is 450,000 cans. Annual fixed costs total $150,000. The variable cost of making and selling each can of balls is $0.75. Owners expect a 15% annual return on the company's $1,000,000 in assets. Assume that Base Line is a price taker in a highly competitive environment. The current market price for a can of balls produced by manufacturers similar to Base Line is $1.55.

1) If Base Line is unable to reduce its total fixed costs below $150,000, what should its target unit variable costs be?

A. $0.75

B. $0.80

C. $0.88

D. $1.35

E. $1.55

2) Base Line has hired a marketing agency to help it gain more control over its sales price. The agency's fee for developing the advertising campaign is $79,548. Assuming sales volume and other costs will not be affected by the advertising campaign, what would Base Line's cost plus price be?

A. $1.43

B. $1.55

C. $0.93

D. $1.42

E. $1.59

Reference no: EM131205840

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