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

question 105

Multiple Choice

Aguilar Company is a price-taker and uses target pricing. Refer to the following information: $\begin{array}{|l|r|l|}\hline \text { Production volume } & 600,000 & \text { units per year } \\\hline \text { Market price } & \$ 30 & \text { per unit } \\\hline \text { Desired operating income } & 15 \% & \text { of total assets } \\\hline \text { Total assets } & \$ 13,800,000 & \\\hline \text { Variable cost per unit } & \$ 20 & \text { per unit } \\\hline \text { Fixed cost per year } & \$ 5,400,000 & \text { per year } \\\hline\end{array}$ 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.)

• A) $4.50
• B) $10.00
• C) $17.55
• D) $20.00

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Definitions:

Uncertainty

The lack of predictability or certainty in situations, often affecting decision-making in businesses and markets.

Strategic Fit

The degree to which an organization's strategies align with its internal capabilities and external environment to achieve a competitive advantage.

Competitive Landscape

The analysis of factors such as competitors, market conditions, and customer preferences within an industry.

Product Life Cycle

The stages a product goes through from development and introduction to the market, growth in sales, maturity, and eventually decline and withdrawal from the market.