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Exam 12: Differential Analysis and Product Pricing

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Question 41

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The condensed income statement for a business for the past year is as follows: Management is considering the discontinuance of the manufacture and sale of Product T at the beginning of the current year.The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Product U.What is the amount of change in net income for the current year that will result from the discontinuance of Product T?

A) $60,000 increase
B) $85,000 increase
C) $85,000 decrease
D) $60,000 decrease

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

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Question 42

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Jarvis Company uses the total cost concept of applying the cost-plus approach to product pricing.The costs and expenses of producing and selling 35,000 units of Product E are as follows: Jarvis desires a profit equal to a 14% rate of return on invested assets of $450,000.

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Question 43

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Soap Company manufactures Soap X and Soap Y and can sell all it can make of either.Based on the following data,which statement is true?

Nachos Co.can further process Product J to produce Product D.Product J is currently selling for $12 per pound and costs $9 per pound to produce.Product D would sell for $20 per pound and would require an additional cost of $5 per pound to produce.What is the differential cost of producing Product D?

Hill Co.can further process Product O to produce Product P.Product O is currently selling for $65 per pound and costs $42 per pound to produce.Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential revenue of producing Product P is $82 per pound.

The condensed income statement for a business for the past year is presented as follows: Management is considering the discontinuance of the manufacture and sale of Product G at the beginning of the current year.The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Products F and H.What is the amount of change in net income for the current year that will result from the discontinuance of Product G?

What is a bottleneck?

A business is considering a cash outlay of $500,000 for the purchase of land,which it intends to lease for $90,000 per year.If alternative investments are available that yield a 12% return,the opportunity cost of the purchase of the land is

Raphael Corporation uses the product cost concept of product pricing.Below is cost information for the production and sale of 50,000 units of its sole product.Raphael desires a profit equal to a 12% rate of return on invested assets of $1,000,000. -The dollar amount of desired profit from the production and sale of the company's product is

A cost that will NOT be affected by later decisions is termed a

The theory of constraints is a manufacturing strategy that focuses on reducing the influence of bottlenecks on a process.

Paul's Delivery Service is considering selling one of its smaller trucks that is no longer needed in the business.The truck originally cost $23,000 and has accumulated depreciation of $10,000.The truck can be sold for $14,000.Another company is interested in leasing the truck.It will pay $4,800 per year for three years.Paul's Delivery Service will continue to pay the taxes and license fees for the truck,but all other expenses will be paid by the lessee.Management assumes the expenses for the taxes and license will be $300 per year.Which of the following statements is correct?

In deciding whether to accept business at a special price,the short- run price should be set high enough to cover all costs and expenses,plus provide a reasonable amount for profit.

Pull Company is considering the disposal of equipment that is no longer needed for operations.The equipment originally cost $600,000,and accumulated depreciation to date totals $460,000.An offer has been received to lease the machine for its remaining useful life for a total of $300,000,after which the equipment will have no salvage value.The repair,insurance,and property tax expenses during the period of the lease are estimated at $75,800.Alternatively,the equipment can be sold through a broker for $230,000 less a 10% commission. Prepare a differential analysis report,dated June 15 of the current year,on whether the equipment should be leased or sold.

When standard costs are used in applying the cost-plus approach to product pricing,the standards should be based upon ideal levels of performance.

In addition to the differential costs in an equipment replacement decision,the remaining useful life of the old equipment and the estimated life of the new equipment are important considerations.

The unit selling price for the company's product is

Matthews Company is considering replacing equipment that originally cost $250,000 and that has $225,000 accumulated depreciation to date.A new machine will cost $500,000,and the old equipment can be sold for $6,000.What is the sunk cost in this situation?

In using the total cost concept of applying the cost-plus approach to product pricing,only profit is covered in the markup.

Soap Company manufactures Soap X and Soap Y and can sell all it can make of either.Based on the following data,if Soap could reduce the processing time for X by 10%,which of the following statements is true?