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

Question

Quizplus · Accepted Answer

The difference in the two prices is due to the fact that the variable cost base only includes variable manufacturing costs, while the full cost base includes both variable and fixed costs. Therefore, the full cost base includes an amount for fixed costs, which leads to a slightly higher prospective price.

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