Solved

Consider the Following Short Case as You Respond to the Next

question 29

Multiple Choice

Consider the following short case as you respond to the next question: ELM Corporation sells durable medical equipment, such as wheelchairs and hospital beds; each salesperson at ELM specializes in a specific type of medical equipment. When a prospective client comes into their store, a greeter does a preliminary needs assessment to determine what type(s) of equipment the client requires. Based on that preliminary assessment, the greeter will match the client with a member of the sales staff. The staff specialist does a more detailed needs assessment, the results of which go into a computerized database along with the client's name, address, phone number and other related information. After the needs assessment, the staff specialist determines the client's budget, as well as whether the client has insurance coverage for the desired equipment; clients without insurance coverage receive a 10% discount on all equipment purchased up to $1,000, and a 20% discount for any sales over $1,000. The staff specialist makes recommendations based on the client's needs and budget. If the client chooses to purchase from ELM, the store fills out any necessary insurance paperwork and collects the client's portion of the bill. For example, if an insured client purchases a wheelchair with a price of $2,000 and the insurance covers 80%, ELM collects $400 from the client at the time of the sale. ELM accepts cash, checks and major credit cards from clients. Insurance payments go directly to ELM's bank account and normally arrive within 60 days of the sale. If the client needs more than one type of durable medical equipment, the first staff specialist introduces the client to a subsequent staff specialist, who repeats the process until all the client's equipment needs are met.Which of the following techniques could be used to document ELM's sales / collection process?

Definitions:

Gross Profit

The profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.

Absorption Costing

A pricing strategy that encompasses all expenses associated with production, including direct materials, direct labor, as well as both variable and fixed overhead costs, in the product's price.

Operating Income

A measure of a company's profitability from its core business operations, excluding revenue and expenses from non-operational activities.

Variable Costing

A costing method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs, excluding fixed manufacturing overhead.