WDY Currently Sells Its Primary Product for $85 Per Unit

question 102

Multiple Choice

WDY currently sells its primary product for $85 per unit, with a profit margin of 30%. Cost of goods sold totals 40% of the product's total cost. WDY's managers are considering implementing a kaizen costing system. As part of its kaizen costing project, WDY's accountants estimate the price of the product will decline by 20% next year. To maintain the same profit margin, the total cost per unit will have to be reduced by

• A) Less than 20%
• B) Exactly 20%
• C) More than 20%
• D) Cannot be determined

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Definitions:

Carrying Amount

The recorded book value of an asset or liability in the financial statements, after accounting for depreciation, amortization, and impairment.

Bonds Issued

The total number of bonds that a company or government has sold to investors but has not yet redeemed.

Effective Interest Method

An accounting practice used to amortize bond premiums or discounts over the life of the bond in a way that reflects a constant rate of interest.

Straight-Line Method

A depreciation method that allocates an equal amount of the asset's cost to each year of the asset's useful life.