Julian Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l | r | l | }
\hline \text { Production volume } & 601,000 & \text { units per year } \
\hline \text { Market price } & \$ 32 & \text { per unit } \
\hline \text { Desired operating income } & 16 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 13,700,000 & \
\hline \text { Variable cost per unit } & \$ 20 & \text { per unit } \
\hline \text { Fixed cost per year } & \$ 5,600,000 & \text { per year } \
\hline
\end{array}$$ With the current cost structure,Julian 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,what are the target variable costs per unit per year? Assume all units produced are sold.(Round your answer to the nearest cent.)

Question

Julian Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l | r | l | } 
\hline \text { Production volume } & 601,000 & \text { units per year } \
\hline \text { Market price } & \$ 32 & \text { per unit } \
\hline \text { Desired operating income } & 16 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 13,700,000 & \
\hline \text { Variable cost per unit } & \$ 20 & \text { per unit } \
\hline \text { Fixed cost per year } & \$ 5,600,000 & \text { per year } \
\hline
\end{array}$$ With the current cost structure,Julian 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,what are the target variable costs per unit per year? Assume all units produced are sold.(Round your answer to the nearest cent.)

Quizplus · Accepted Answer

To find the target variable costs per unit per year, first calculate the desired operating income: 16% of total assets = 0.16 * $13,700,000 = $2,192,000. The total revenue is the market price times the production volume: $32 * 601,000 = $19,232,000. To achieve the desired operating income, total costs (variable and fixed) must be total revenue minus desired operating income: $19,232,000 - $2,192,000 = $17,040,000. Fixed costs are given as $5,600,000, so total variable costs must be $17,040,000 - $5,600,000 = $11,440,000. The target variable cost per unit is then $11,440,000 / 601,000 units = $19.03.

Julian Company Is a Price-Taker and Uses Target Pricing With the Current Cost Structure,Julian Cannot Achieve Its Profit Goals