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economics/business question?(10 posts)

economics/business question?DougSloan
Jan 28, 2004 9:53 AM
A car manufacturer is going to give away a car in a marketing promotion. What is the "cost" to the manufacturer to do this (for a moment ignoring the benefit of the marketing campaign)?

A. The retail cost of the car
B. The wholesale cost of the car (dealer invoice?)
C. The actual cost to make the car given away
D. The profit the maker would have made by selling that car
E. Something else (explain)

Doug [on the lam (depositions) in Portland for the last 2 weeks]
Well, the benefit is list price, at least for the taxman.dr hoo
Jan 28, 2004 9:58 AM
If you win a prize, you owe taxes for the list price of your winnings. You win a car, you pay tax on the sticker price. You do not pay taxes based on wholesale, or market cost.

I'm just guessing it is list price. I have no actual knowledge of the tax code involved.
re: economics/business question?Jon Billheimer
Jan 28, 2004 10:00 AM
"C", less the expensed writeoff, if that's possible under American tax law.
The real question isredmenace
Jan 28, 2004 10:02 AM
how much surplus labor went into the building of the car, in the form of profits sucked from the Workers by the bosses?

Ahem.

But back in the real world, my best guess would be to ask a question: How much is out of the bosses' already overstufffed pockets because they gave the car away? The answer would be C and D, added together (D being the surplus labor taken out of the Workers' hide, I might add).
sheeshDuane Gran
Jan 29, 2004 6:09 AM
I hope I'm missing some irony in your post (if so, accept my apologies), but it seems pretty bitter to criticize someone who gives something away.
FMV: Fair market valueSpunout
Jan 28, 2004 10:03 AM
Cost of the raw materials and services to bring the car to the market, plus the potential profits foregone.

FMV is usually the best tax answer.

Cost accounting answer is the actual product costs only. This would be used for internal marketing budgets.

Hope this helps,

Spunout CMA
Lower of cost or market value (nm)TJeanloz
Jan 28, 2004 10:05 AM
I am going to give an.......Len J
Jan 28, 2004 10:20 AM
attorney's answer (ahem)..........It depends on what you mean or want.

a.) Pure cost to the manufacturer is athe actual cot to make the car plus the cost of the promotion.

b.) Opportunity cost is the profit he would have made IF he could have sold it plus the cost of the promotion.

c.) Variable cost to the manufacturer is the incremental cost it took him to make that car. Assuming he absorbed all his fixed manufacturing costs over all previous manufactured units, then only the incremental material, labor supplies utilites etc that he bought because he was making this car would be his variable cost plus the cost of the promotion.

d.) Cost for tax deduction purposes to the manufacturer is something different entirely due to inventory capitalization rules.

The point is, that depending on why you want the question answered, (what you are going to do with the answer), I would answer the question differently.

Len

PS> Some of the previous answers are wrong because they were not answering the question about the MANUFACTURERS cost
Len J nailed it.No_sprint
Jan 29, 2004 8:16 AM
Tax and management accounting are very different things.
re: economics/business question?Steve98501
Jan 28, 2004 3:05 PM
C plus D.