Cost Analysis for Pricing: F. B. Floyd, Inc., has operated a violin case manufacturing business since 1920. The regular price of violin cases is $40 each. Floyd's controller has prepared cost data on these cases based on a normal selling volume of 20.000 cases per year:

This week, the Ness Corporation moved into Floyd's market area. Ness instituted a media campaign designed to lure Floyd's customers away. Indeed, Ness offered violin cases at one half of Floyd's selling price.

Floyd estimates that if he meets the Ness Corporation price, his volume will increase to 25,000 cases because people who previously were buying elsewhere would be induced to buy locally. However, if he does not meet Ness's price. Floyd's volume will fall to 4,000 cases per year.

Required:

a. Prepare a schedule to show the differential costs of the decision.

b. What should Floyd do?

Transcribed Image Text:

Direct materials Direct labor Overhead Marketing and administrative Total cost $ 7.50 8.00 6.00 (75% fixed) 4.00 (all fixed) $25.50