BLG 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: 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

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To achieve a profit margin of 80%, the desired markup on total costs is 4:1.
Total avoidable costs are $4,000 + $3,500 + $1,800 = $9,300.
The desired markup on total costs is $9,300 x 4 = $37,200.
Total costs (avoidable + unavoidable) are $37,200 + $800 = $38,000.
Unavoidable costs represent 800/9,300 = 8.6% of avoidable costs.
Therefore, Sport Star's yacht total cost is $9,300 x 1.086 = $10,092.
However, this cost includes the desired markup of 4:1, so the actual selling price of the yacht will be $10,092/4 = $2,523.
Therefore, the answer is option C) $1,833.

BLG Produces and Sells Yachts for Wealthy Customers