Question

Allocation of corporate-sustaining costs is useful for which of the following?

		A) evaluating the performance of salespersons with individual customer accounts
		B) motivating distribution-channel management
		C) focusing on the cause-and-effect relationships with the cost-allocation bases
		D) motivating division managers to examine how corporate costs are planned and controlled

Block Island TV currently sells large televisions for $380. It has costs of $290. A competitor is bringing a new large television to market that will sell for $320. Management believes it must lower the price to $320 to compete in the market for large televisions. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Block Island TV sales are currently 120,000 televisions per year. What is the target cost if the company wants to maintain its same income level, and marketing is correct (rounded to the nearest cent)?

		A) $224.00
		B) $238.18
		C) $230.00
		D) $290.00

Answer 1

answer:D) Motivating division managers to examine how corporate costs are planned and controlled explanation Allocation of corporate sustaining costs is useful for Motivating division managers to examine how corporate costs are planned and controlled. The manager is the responsible for the allocation and controlling of these sustaining cots. answer B) :$238.18 explanation selling price of television 380 cost per unit 290 profit per unit current sales 120000 units current profit in dollars = 90 120000 10800000 new sales units = 120000*110% 132000 units new sales in dollars = $320*132000 42240000 target cost in dollars = new sales - current profit =$42,240,000-$10,800,000 31440000 target cost per unit = $31440000/132000units 238.18