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Exam 9: Differential Analysis, Product Pricing, and Activity-Based Costing

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Question 1

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Differential analysis only considers the short-term one-year effects of discontinuing a product.

A) True
B) False

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Question 2

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Delaney Company is considering replacing equipment which originally cost $600,000 and which has $420,000 accumulated depreciation to date.A new machine will cost $790,000.What is the sunk cost in this situation?

A) $370,000
B) $790,000
C) $180,000
D) $190,000

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

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Question 3

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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. 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 activity rate for production setup?

What is the differential revenue of producing Product D?

The amount of increase or decrease in cost that is expected from a particular course of action as compared with an alternative is

The differential cost of producing Product P is $55 per pound.

Depending on the capacity of the plant, a company may best be served by further processing some of the product and leaving the rest as is, with no further processing.

Farris Company is considering a cash outlay of $500,000 for the purchase of land, which it could lease out for $40,000 per year.If alternative investments are available that yield a 15% return, the opportunity cost of the purchase of the land is

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

What is the contribution per machine hour for Wales?

Cost-plus methods determine the normal selling price by estimating a cost amount per unit and adding a markup.

Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.

Piper Rose Boutique has been approached by the community college to make special polo shirts for the faculty and staff.The college is willing to buy 4,000 polos with its own design for $6.00 each.The company normally sells its shirts for $12.00 each.The company has enough excess capacity to make this order.A breakdown of their costs is as follows: Should Piper Rose Boutique accept the special order made by the college?

Target costing is arrived at by taking

Opportunity cost is the amount of increase or decrease in cost that would result from the best available alternative to the proposed use of cash or its equivalent.

What cost concept used in applying the cost-plus approach to product pricing includes only total manufacturing costs in the cost amount to which the markup is added?

The total cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.

Contractors who sell to government agencies would be most likely to use which of the following cost concepts in pricing their products?

What is the differential cost from the acceptance of the offer?