Examining the two fiscal years 2013 and 2014, with input prices in 2013 and 2014 being $9 and $11 per unit respectively, and input quantities needed in 2013 to create the 2014 output amounting to 30000 units, the cost effect of price recovery will be ___________?
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Answer: A. $60,000
Explanation
The price recovery cost effect equals the price change multiplied by the current output quantity. The input price changed from nine dollars to eleven dollars, creating a two dollar difference. Multiplying this two dollar difference by the thirty thousand units yields sixty thousand dollars. Price recovery analysis helps companies understand how output price changes impact overall profitability. Calculating this effect requires comparing input prices across two distinct fiscal operating years. Financial analysts use these specific variance formulas to evaluate cost management strategies effectively.
Businesses apply this metric during annual budgeting reviews to assess inflationary cost pressures. Manufacturing firms monitor these figures closely to maintain desired profit margins over time. Understanding price recovery helps executives negotiate better long term supply contracts with vendors. Option B represents a calculation error resulting from incorrect decimal placement in multiplication. Option C incorrectly includes additional overhead costs not specified in the problem statement. Option D underestimates the financial impact by failing to multiply by the correct volume.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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