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

question 152

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. Which of the following explains the difference in the two prices?

• A) the estimated amount of profit
• B) the variable cost base estimates fixed costs in the markup percentage while the full cost base includes an amount for fixed costs
• C) there is no explanation since this is known as price discrimination
• D) the difference is caused by the inability to estimate fixed cost per unit with any degree of reliability

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Definitions:

Fixed-Proportion

A production situation where input factors must be combined in rigidly specified quantities, without the flexibility to substitute one input for another.

Production Function

A mathematical representation that shows the relationship between input factors and the output of a product or service.

Production Process

The series of steps and activities involved in transforming raw materials into finished goods or services.

MRTS

The Marginal Rate of Technical Substitution; the rate at which a firm can substitute one input for another while keeping the level of output constant.