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

question 57

Multiple Choice

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.
If unavoidable costs are allocated as a percentage of avoidable costs, the total cost of Sport Star's yacht will be:

• A) $1,500
• B) $2,300
• C) $1,833
• D) $1,167

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Definitions:

Van

A type of vehicle designed for transporting goods or people, characterized by its large cargo or passenger area and commonly used for commercial, logistical, or personal use.

Loss

The negative financial result from a business's operations where expenses exceed revenues.

Fully Depreciated

An asset has reached the end of its useful accounting life, and its book value is reduced to salvage or residual value.

Plant Asset

Long-term tangible assets that are used in the operation of a business and not expected to be converted to cash in the short term.