Aguilar company is a priceminus−taker and uses target pricing. refer to the following information: production volume 601 comma 000601,000 units per year market price $ 30$30 per unit desired operating income 1616% of total assets total assets $ 13 comma 700 comma 000$13,700,000 variable cost per unit $ 19$19 per unit fixed cost per year $ 5 comma 400 comma 000$5,400,000 per year 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.)

Target variable costs/ unit /year = $17.37

Explanation:

We reverse work this to get to target variable costs,

First lets summarize the data,

Production = 601,000 units

Price = $30

Variable cost = $19

Fixed Costs= $5,400,000

Desired operating income @ 16% = (0.16*13,700,000) = $2,192,000

We reverse work this as,

Sales (601,000*30)                          18,030,000

Less Variable costs(GP - Sales)       10,438,000

Gross Profit (FC + Profit)                   7,592,000

Less Fixed Costs                               5,400,000

Profit                                                    2,192,000

Variable costs/ unit /year = 10,438,000 / 601,000 = $17.37/unit

Hope that helps.

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