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.
Which customer's yacht will have the lowest total cost if unavoidable costs are allocated based on the cost of a basic yacht?

Question

Quizplus · Accepted Answer

The unavoidable costs are allocated based on the cost of a basic yacht, which is the same ($600) for all three customers. Therefore, the allocation does not affect the ranking of total costs, and Big Winner has the lowest total cost before allocation ($1,000).

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