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.
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 determine the selling price of Sport Star's yacht, we need to first calculate the total avoidable costs:

Direct material: $6,000
Direct labor: $9,000
Variable overhead: $3,000
Total avoidable costs: $18,000

Next, we need to allocate the corporate unavoidable costs based on total avoidable costs:

Corporate unavoidable costs: $800
Total avoidable costs: $18,000
Allocation rate: $800 / $18,000 = 0.0444 (rounded to four decimal places)

Now, we can calculate the total cost:

Direct material: $6,000
Direct labor: $9,000
Variable overhead: $3,000
Corporate unavoidable costs: ($18,000 x 0.0444) + $800 = $1,592.80
Total cost: $19,592.80

Finally, we can calculate the selling price based on the desired profit margin:

Total cost / (1 - profit margin) = Selling price
$19,592.80 / (1 - 0.80) = $98,464
Selling price for Sport Star's yacht: $98,464 / 30 (yachts produced) = $3,282.13
Rounded to the nearest hundred: $3,300

Therefore, the best choice is B) $3,300.

BLG Produces and Sells Yachts for Wealthy Customers