Answer the Following Questions Using the Information Below

question 72

Multiple Choice

Answer the following questions using the information below:
Flify Manufacturing Inc., incurred total indirect manufacturing labor costs of $500,000. The company is labor intensive. Total labor hours during the period were 5,000. Using qualitative analysis, the manager and the management accountant determine that over the period the indirect manufacturing labor costs are mixed costs with only one cost driver-labor-hours. They separated the total indirect manufacturing labor costs into costs that are fixed ($110,000 based on 8,000 hours of labor) and costs that are variable ($390,000) based on the number of labor-hours used. The company has estimated 7,000 labor hours during the next period.
-Which of the following represents the correct linear cost function?

• A) y = $390,000 + $ 48.75X
• B) y = $110,000 + $100 X
• C) y = $110,000 + $78 X
• D) y = $390,000 + $62.50 X

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Definitions:

Skimming Pricing Policy

A pricing strategy in which a company sets relatively high prices at the launch of a new product to maximize profit margins from customers willing to pay the premium price.

Price-sensitive

Refers to how demand for a product is influenced by changes in its price; price-sensitive consumers are likely to change their purchasing behaviors significantly in response to price changes.

High Initial Price

A pricing strategy where a product is introduced to the market at a high price point to maximize revenue from less price-sensitive customers before possibly lowering the price.

Skimming Pricing

A pricing strategy involving setting high prices initially to target consumers who are willing to pay more for new or unique products.