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Exam 24: Differential Analysis, Product Pricing, and Activity-Based Costing

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Question 41

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The target cost approach assumes that

A) markup is added to total cost
B) the selling price is set by the marketplace
C) markup is added to variable cost
D) markup is added to product cost

E) B) and D)
F) A) and B)

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Question 42

Multiple Choice

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What is the amount of income or loss from the acceptance of the offer?

A) $97,500 income
B) $94,500 loss
C) $37,500 income
D) $37,500 loss

E) A) and D)
F) B) and C)

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Question 43

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Olsen Company produces two products. Product A has a contribution margin of $30 and requires 10 machine hours. Product B has a contribution margin of $24 and requires 4 machine hours. Determine the most profitable product assuming the machine hours are the constraint.

Lark Art Company sells unfinished wooden decorations at a price of $15. The current profit margin is $5 per decoration. The company is considering taking individual orders and customizing them for customers. To finish the decoration, the company would have to pay additional labor of $3 per unit, additional materials costing an average of $4 per unit, and fixed costs would increase by $1,500. If the company estimates that it can sell 600 units for $25 per unit each month, should it start taking the orders?

All of the following should be considered in a make-or-buy decision except

Mighty Safe Fire Alarm is currently buying 50,000 motherboards from MotherBoard, Inc. at a price of $65.00 per board. Mighty Safe is considering making its own motherboards. The costs to make the motherboards are as follows: direct materials, $32.00 per unit; direct labor, $10.00 per unit; and variable factory overhead, $16.00 per unit. Fixed costs for the plant would increase by $75,000. Which option should be selected and why?

Falcon Inc. manufactures Product B, incurring variable costs of $15.00 per unit and fixed costs of $70,000. Falcon desires a profit equal to a 12% rate of return on assets, $785,000 of assets are devoted to producing Product B, and 100,000 units are expected to be produced and sold. (a)Compute the markup percentage, using the total cost concept. (b)Compute the selling price of Product B.Round intermediate calculations and final answer to two decimal places.

What cost concept used in applying the cost-plus approach to product pricing includes only desired profit in the markup?

What is the target cost of the company's product?

Canine Company has total estimated factory overhead for the year of $2,400,000, divided into four activities: fabrication, $1,200,000; assembly, $480,000; setup, $400,000; and materials handling, $320,000. Canine manufactures two products, Standard Crates and Deluxe Crates. The activity-base usage quantities for each product by each activity are as follows:​ Each product is budgeted for 20,000 units of production for the year.Determine (a) the activity rates for each activity and (b) the factory overhead cost per unit for each product using activity-based costing.​

A bottleneck begins when demand for the company's product exceeds the ability to produce the product.

Use this information for Dotterel Corporation to answer the questions that follow. ? Dotterel Corporation uses the variable cost concept of product pricing. Below is the cost information for the production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to an 11.2% rate of return on invested assets of $350,000. ?? -The markup percentage for the sale of the company's product is

Grace Co. can further process Product B to produce Product C. Product B is currently selling for $60 per pound and costs $38 per pound to produce. Product C would sell for $95 per pound and would require an additional cost of $13 per pound to produce. What is the differential revenue of producing and selling Product C?

Which of the following reasons would cause a company to reject an offer to accept business at a special price?

Yasmin Co. can further process Product B to produce Product C. Product B is currently selling for $30 per pound and costs $28 per pound to produce. Product C would sell for $55 per pound and would require an additional cost of $31 per pound to produce. What is the differential cost of producing Product C?

The Porter Beverage Factory owns a building for its operations. Porter uses only half of the building and is considering two options for the unused space. The Popcorn Store would like to purchase the half of the building that is not being used for $550,000. A 5% commission would have to be paid at the time of purchase. Salty Snacks would like to lease half of the building for the next five years at $100,000 each year. Porter would have to continue paying $15,000 of property taxes each year and $2,000 of yearly insurance on the property, according to the proposed lease agreement.​Determine the differential income or loss from the lease alternative.

Jarrett Company is considering a cash outlay of $300,000 for the purchase of land, which it could lease out for $36,000 per year. If alternative investments that yield a 9% return are available, the opportunity cost of the purchase of the land is

The Eastwood Cake Factory sells chocolate cakes, birthday decorated cakes, and specialty cakes. The factory is experiencing a bottleneck and is trying to determine which cake is more profitable. Even though the company may have to limit the orders that it takes, Eastwood is concerned about customer service and satisfaction.? $\begin{array} { | l | r | r | r | } \hline& \begin{array} { c } \text { Chocolate } \\\text { Cake }\end{array} & \text { Birthday Cake } & \text { Specialty Cake } \\\hline \text { Sales price } & \$ 20.00 & \$ 45.00 & \$ 60.00 \\\hline \text { Variable cost per cake } & \$ 5.00 & \$ 12.00 & \$ 20.00 \\\hline \begin{array} { l } \text { Hours needed to bake, frost, } \\\text { and decorate }\end{array} & 1 \text { hour } & 2.5 \text { hours } & 2 \text { hours } \\\hline\end{array}$ (a) Calculate the contribution margin per hour per cake. (b) Determine which cakes the company should try to sell more of first, second, and then last.

What is the contribution margin per machine hour for Bales?

Lara Technologies is considering a cash outlay of $250,000 for the purchase of land, which it could lease out for $35,000 per year. If alternative investments that yield a 12% return are available, the opportunity cost of the purchase of the land is