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Exam 10: Differential Analysis and Product Pricing

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Question 41

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A cost that will not be affected by later decisions is termed a(n)

A) period cost
B) differential cost
C) sunk cost
D) replacement cost

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

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Question 42

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Rylan Corporation received an offer from an exporter for 25,000 units of product at $16 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: What is the differential cost from the acceptance of the offer?

A) $150,000
B) $275,000
C) $550,000
D) $125,000

E) All of the above
F) A) and B)

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Question 43

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Miramar Industries manufactures two products: A and B.  The manufacturing operation involves three overhead activities-production setup, material handling, and general factory activities.  Miramar uses activity-based costing to allocate overhead to products.  An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities: What is the activity rate for general overhead?

Using the variable cost concept, determine the markup per unit for 30,000 units using the following data: Variable cost per unit         $15.00 Total fixed costs               $90,000 Desired profit                $150,000

Due to Medicare reimbursement cuts, Loving Home Care is considering shutting down its Certified Nursing Assistant (CNA) Division. Fixed costs will have to be transferred to the Nursing Division if the CNA division is discontinued.  Based on the following income statement make a recommendation to the president regarding this decision.

Peyton Company manufactures Phone X and Phone Y. Peyton can sell all it can make of either. Based on the following data, assuming the number of hours is a constraint, which statement is true?

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.

The Turtle Company has total estimated factory overhead for the year of $1,200,000, divided into four activities: fabrication, $600,000; assembly, $240,000; setup, $200,000; and materials handling, $160,000. Turtle manufactures two products, Boogie Boards and Surf Boards. The activity-base usage quantities for each product by each activity are as follows: Each product is budgeted for 10,000 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.

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 the half of the building for the next 5 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.

Carmen Co. can further process Product J to produce Product D. Product J is currently selling for $20 per pound and costs $15.75 per pound to produce. Product D would sell for $38 per pound and would require an additional cost of $8.55 per pound to produce. What is the differential cost of producing Product D?

Magpie Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000. The unit selling price for the company's product is

Differential revenue is the amount of income that would result from the best available alternative proposed use of cash.

Lark Art Company sells unfinished wooden decorations at a price of $15.00.  The current profit margin is $5.00 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 $3.00 per unit, additional materials costing an average of $4.00 per unit, and fixed costs would increase by $1,500. If the company estimates that it can sell 600 units for $25.00 per unit each month, should it start taking the orders?

If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $12.

Jamison Company produces and sells Product X at a total cost of $25 per unit, of which $15 is product cost and $10 is selling and administrative expenses. In addition, the total cost of $25 is made up of $14 variable cost and $11 fixed cost.  The desired profit is $5 per unit. Determine the markup percentage on total cost.

If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $48.

Snipe Company has been purchasing a component, Part Q for $19.20 per unit. Snipe is currently operating at 70% of capacity and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part Q is estimated as follows: Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Q.

Discontinuing a product or segment is a huge decision that must be carefully analyzed. Which of the following would be a valid reason not to discontinue an operation?

When using the variable cost concept of applying the cost-plus approach to product pricing, what is included in the markup?

In using the product cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.