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

question 20

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.
Suppose BLG allocates unavoidable corporate costs based on total avoidable costs. The selling price of Sport Star's yacht will be:

• A) $1,833
• B) $3,300
• C) $1,467
• D) $2,200

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Definitions:

Multiplier

In economics, a factor by which a change in spending results in a greater change in national income.

Fiscal Policy

Policies established by the government regarding taxes and expenditures designed to affect the economic environment.

Budget Deficit

The financial situation where a government's expenditures exceed its revenues, leading to borrowing or depletion of reserves.

National Debt

The overall monetary liabilities that a country's government has incurred by borrowing from diverse sources.