EXERCISE 5-12 (30 MINUTES)

3. - SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH05 COST BEHAIVIOR ANALYSSIS AND USE 3. - SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH05 COST BEHAIVIOR ANALYSSIS AND USE
SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH05 COST BEHAIVIOR ANALYSSIS AND USE
3. We would favor bidding slightly less than $30 to get the contract. Any bid above $22 would contribute to profits and a bid at the normal price of $31 is unlikely to land the contract. And apart from the contribution to profit, catering the event would show off the company’s capabilities to potential clients. The danger is that a price lower than the normal bid of $31 might set a precedent for the future or it might embroil the com-pany in a price war among caterers. However, the price need not be publicized and the lower price could be justified to future clients be-cause this is a charity event. Another possibility would be for Maria to maintain her normal price but throw in additional services at no cost to the customer. Whether to compete based on price or service is a deli-cate issue that Maria will have to decide after getting to know the per-sonality and preferences of her customers. Case 5-28 (90 minutes)