BLG Corporation produces and sells yachts for wealthy customers. BLG's accountants produced the data shown below as a basis for client negotiations for the coming year: $\begin{array}{lrrr}&\text { Biq Winner }&\text { Sport Star }& \text { CEO }\
\text { Basic yacht } & \$ 600 & \$ 600 & \$ 600 \
\text { Customization costs } & 300 & 500 & 200 \
\text { Marketing costs } & 100 & 400 & 300\
\text { Total costs }& \$ 1,000 & \$ 1,500 &\$ 1,100
\end{array}$ Assume that all the preceding costs are avoidable. The company will incur an additional $800 in unavoidable costs during the coming year. BLG's managers want to achieve a profit margin of 80% based on total costs.
If unavoidable costs are allocated as a percentage of avoidable costs, the total cost of Sport Star's yacht will be:

Question

Quizplus · Accepted Answer

First, calculate the total avoidable costs: $1,000 (Big Winner) + $1,500 (Sport Star) + $1,100 (CEO) = $3,600. The unavoidable costs of $800 need to be allocated based on the percentage of avoidable costs each yacht represents. Sport Star's avoidable costs are $1,500 out of a total of $3,600, so its share of unavoidable costs is $800 * ($1,500 / $3,600) = $333. Adding this to Sport Star's avoidable costs gives $1,500 + $333 = $1,833.

BLG Corporation Produces and Sells Yachts for Wealthy Customers Assume That All the Preceding Costs Are Avoidable