Samuels Company Is Considering Pricing Its 10,000-Gallon Petroleum Tanks Using

question 93

Multiple Choice

Samuels Company is considering pricing its 10,000-gallon petroleum tanks using either variable manufacturing or full product costs as the base.The variable cost base provides a prospective price of $6,000 and the full cost base provides a prospective price of $6,100.The difference between the two prices is ________.

• A) the estimated amount of profit
• B) that the variable cost base estimates fixed costs in the markup percentage while the full cost base includes an amount for fixed costs
• C) known as price discrimination
• D) caused by the inability of most companies to estimate fixed cost per unit with any degree of reliability

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Definitions:

Effective Interest Method

A technique used in accounting to allocate interest expense or income over the life of a financial instrument at a constant interest rate.

Semiannually

Occurring twice a year, typically every six months.

Discount Amortized

The process of gradually reducing the discount on bonds payable over the life of the bonds as an interest expense.