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: Big Winner Sport Star CEO
Basic yacht $ 600 $ 600 $ 600
Customization costs 300 500 200
Marketing costs 100 400 300
Total costs $1,000 $1,500 $1,100
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 cost of a basic yacht is the same for all three customers. Therefore, if unavoidable costs are allocated based on the cost of a basic yacht, the total cost for each customer will be the same.

BLG Corporation Produces and Sells Yachts for Wealthy Customers