Starwatch Manufacturing sells a number of goods whose selling price is heavily inﬂuenced by cost.A recent study of product no.520 revealed a traditionally- derived total cost of $1,623 and a selling price of $1,850 based on that ﬁgure.A newly computed activity-based total cost is $1,215.Which of the following statements is true?
A)All other things being equal, Starwatch should consider increasing its sales price.
B)Starwatch should increase the product's selling price to maintain the same markup percentage.
C)Product no.520 could be labeled as being overcosted by Starwatch's traditional costing procedures.
D)If product no.520 is undercosted by traditional accounting procedures, then all of Starwatch's other products must be undercosted as well.
E)Generally speaking, the activity-based cost ﬁgure is "less accurate" than the traditionally-derived cost ﬁgure.

Question

Quizplus · Accepted Answer

The activity-based total cost is significantly lower than the traditionally derived total cost, indicating that product no.520 may have been overcosted by Starwatch's traditional costing procedures. This may mean that the selling price is higher than it needs to be to achieve the desired markup. Therefore, Starwatch should consider reducing the selling price of product no.520 to boost sales and remain competitive. None of the other options are supported by the information given in the question.

Starwatch Manufacturing Sells a Number of Goods Whose Selling Price