Price Discrimination, Customer Costs Jorell, Inc., manufactures and distributes a variety of labelers. Annual production of labelers averages 340,000 units. A large chain store purchases about 30 percent of Jorell's production. Several thousand independent retail office supply stores purchase the other 70 percent. Jorell incurs the following costs of production per labeler: Direct materials $ 8.90 Direct labor 2.40 Overhead 3.20 $14.50 Total Jorell 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 about three times a month at a delivery cost of $750 per batch. Eight salespeople service the remaining accounts. They call on the stores and incur salary and 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 relevant calculations. (Round unit costs to the nearest cent.) ,the cost differential of justify the price differential of $3.50.
Price Discrimination, Customer Costs Jorell, Inc., manufactures and distributes a variety of labelers. Annual production of labelers averages 340,000 units. A large chain store purchases about 30 percent of Jorell's production. Several thousand independent retail office supply stores purchase the other 70 percent. Jorell incurs the following costs of production per labeler: Direct materials $ 8.90 Direct labor 2.40 Overhead 3.20 $14.50 Total Jorell 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 about three times a month at a delivery cost of $750 per batch. Eight salespeople service the remaining accounts. They call on the stores and incur salary and 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 relevant calculations. (Round unit costs to the nearest cent.) ,the cost differential of justify the price differential of $3.50.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Price Discrimination, Customer Costs
Jorell, Inc., manufactures and distributes a variety of labelers. Annual production of labelers averages 340,000 units. A large chain store purchases
about 30 percent of Jorell's production. Several thousand independent retail office supply stores purchase the other 70 percent. Jorell incurs the
following costs of production per labeler:
Direct materials
$ 8.90
Direct labor
2.40
Overhead
3.20
$14.50
Total
Jorell 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 about
three times a month at a delivery cost of $750 per batch. Eight salespeople service the remaining accounts. They call on the stores and incur salary
and 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 relevant
calculations. (Round unit costs to the nearest cent.)
,the cost differential of
justify the price differential of $3.50.
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