Drake Manufacturing Sells a Number of Goods Whose Selling Price

question 9

Multiple Choice

Drake Manufacturing sells a number of goods whose selling price is heavily influenced by cost.A recent study of product no.520 revealed a traditionally-derived total cost of $1,623 and a selling price of $1,850 based on that figure.A newly computed activity-based total cost is $1,215.Which of the following statements is true?

• A)All other things being equal,Drake should consider increasing its sales price.
• B)Drake should increase the product's selling price to maintain the same markup percentage.
• C)Product no.520 could be labeled as being overcosted by Drake's traditional costing procedures.
• D)If product no.520 is undercosted by traditional accounting procedures,then all of Drake's other products must be undercosted as well.
• E)Generally speaking,the activity-based cost figure is "less accurate" than the traditionally-derived cost figurE.

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Definitions:

Operating Expenses

The costs associated with running the day-to-day operations of a business, excluding the costs of goods sold.

Profit

The financial gain made in a transaction, calculated by subtracting the total costs from the total revenue.

Sale Price

The ultimate selling price of a product, once all discounts or promotional offers have been taken into account.

Gross Profit

The difference between the selling price and the unit cost of an item of merchandise. (Also called markup.)