Price Discrimination, Customer CostsJorell, Inc., manufactures and distributes a variety of labelers. Annual production of labelers averages 340,000 units. A large chain store purchasesabout 30 percent of Jorell's production. Several thousand independent retail office supply stores purchase the other 70 percent. Jorell incurs thefollowing costs of production per labeler:Direct materials$ 8.90Direct labor2.40Overhead3.20$14.50TotalJorell has two salespeople assigned to the chain store account at a cost of $55,000 each per year. Delivery is made in 1,500 unit batches aboutthree times a month at a delivery cost of $750 per batch. Eight salespeople service the remaining accounts. They call on the stores and incur salaryand mileage expenses of approximately $41,000 each. Delivery costs vary from store to store, averaging $0.60 per unit.Jorell charges the chain store $16.50 per labeler and the independent office supply stores $20 per labeler.Required:Is Jorell's pricing policy supported by cost differences in serving the two different classes of customer? Support your answer with relevantcalculations. (Round unit costs to the nearest cent.),the cost differential ofjustify the price differential of $3.50.

Annual production = 340,000 unitsPurchase share:- 30% by large chain store= 340,000 x 30%= 102,000…

Answered: Price Discrimination, Customer Costs…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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