Aguilar Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l | l | l | }
\hline \text { Production volume } & \$ 01,000 & \text { units per year } \
\hline \text { Market price } & \$ 30 & \text { per unit } \
\hline \text { Desired operating income } & 17 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 13,800,000 & \
\hline \text { Variable cost per unit } & \$ 19 & \text { per unit } \
\hline \text { Fixed cost per year } & \$ 5,500,000 & \text { per year } \
\hline
\end{array}$$ With the current cost structure,Aguilar 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

Aguilar Company is a price-taker and uses target pricing.Refer to the following information: $$\begin{array} { | l | l | l | } 
\hline \text { Production volume } & \$ 01,000 & \text { units per year } \
\hline \text { Market price } & \$ 30 & \text { per unit } \
\hline \text { Desired operating income } & 17 \% & \text { of total assets } \
\hline \text { Total assets } & \$ 13,800,000 & \
\hline \text { Variable cost per unit } & \$ 19 & \text { per unit } \
\hline \text { Fixed cost per year } & \$ 5,500,000 & \text { per year } \
\hline
\end{array}$$ With the current cost structure,Aguilar 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

Since Aguilar is a price-taker and uses target pricing, it needs to adjust its cost structure to achieve its profit goals. However, fixed costs cannot be reduced. Therefore, the only option is to reduce the variable costs. Using the formula: Target Cost = Selling Price - Desired Profit, we can calculate the target variable cost per unit per year as follows:

Target Cost = $23.50 - $6.50 = $17.00

Therefore, the target variable costs per unit per year should be $16.95 ($17.00 rounded to the nearest cent) to achieve the desired profit goals. Hence, the best choice is C.

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