Davis Driveways, Inc. (DDI) pours concrete driveways for single family homes. DDI uses a cost-plus pricing approach. The company’s accountant prepared the following report showing how DDI established the price per driveway at $350.
A new builder in town, Rachel Rodgers, has acquired a large tract of land upon which she intends to build 200 single family homes. Ms. Rodgers offers to purchase all 200 driveways from DDI. However, she is willing to pay only $250 per driveway.
Assume your group is a management team responsible for deciding whether to accept or reject Ms. Rodgers’ offer. Develop a response, support your decision with appropriate computations, and choose a spokesperson to explain your answer.
Demonstration Problem 6-2 Contrast Relevance, Cost Behavior, and Cost Type
Pass Fast, Inc. is considering two alternative locations in which to conduct its CPA review course. One alternative is an exclusive hotel; the other is a moderately priced training facility. The hotel is in a central location easily accessible to potential students. The training facility is in a less desirable location. Pass Fast has gathered the following cost data regarding the two locations.
| | |Training | |Cost |Product | | |Cost Items |Hotel |Facility |Relevant? |Behavior |or GS&A | | |Twenty Advertising Brochures Distributed to each Student for | | |N |V |GSA | | |Referrals |250 |250 | | | | | |Cost of Instruction |5,000 |5,000 |N...