US Best Corporation produces and distributes products nationwide, and competes o

Question

US Best Corporation produces and distributes products nationwide, and competes on cost leadership. In order to maintain its current industry cost and price leadership role, US Best uses cost-based pricing techniques. One of the factors considered in determining future prices is the Consumer Price Index (CPI). Considerable discussion over the past year on the national level has strongly suggested the monthly CPI inflation adjustment figure is skewed upward by as much as one percentage point. Required: What implication does this purported inflation exaggeration in the Consumer Price Index have on US Best Corporation's cost-based pricing changes in the near future? benefits of implementing a master budgeting system

Explanation / Answer

US Best Corporation should remove the excess percentage point CPI inflation rate if

(a) it believes the CPI is overstated by that amount;

(b) it believes its competitors will adjust the same amount for the same reason; and

(c) if it truly wants to maintain the costbased price leadership it currently maintains

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