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.
Suppose BLG allocates unavoidable corporate costs based on total avoidable costs. The selling price of Sport Star's yacht will be:

Question

Quizplus · Accepted Answer

To find the selling price of Sport Star's yacht, first calculate the total cost including allocated unavoidable costs. Sport Star's avoidable costs are $1,500. The total avoidable costs for all yachts are $1,000 + $1,500 + $1,100 = $3,600. The allocation of unavoidable costs to Sport Star is ($1,500 / $3,600) * $800 = $333.33. The total cost for Sport Star is $1,500 + $333.33 = $1,833.33. To achieve an 80% profit margin, the selling price should be $1,833.33 * (1 + 0.80) = $3,300.

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