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Exam 9: Differential Analysis and Product Pricing

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Question 41

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A business received an offer from an exporter for 10,000 units of product at $17.50 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data is available: What is the differential cost from the acceptance of the offer?

A) $200,000
B) $175,000
C) $140,000
D) $110,000

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

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Question 42

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The Swan Company produces their product at a total cost of $43 per unit. Of this amount $8 per unit is selling and administrative costs. The total variable cost is $30 per unit The desired profit is $20 per unit. Determine the mark up percentage on product cost.

A) 80%
B) 46.5%
C) 70%
D) 110%

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

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Question 43

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Activity-based costing provides more accurate and useful cost data than traditional systems.

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: Each product's total activity in each of the three areas are as follows: What is the overhead allocated to Product B using activity-based costing?

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:

Make or buy decisions should be made only with related parties.

Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling prices are: $55; $78; and $32, respectively. The variable costs for each product are: $20; $50; and $15, respectively. Each product must go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to process, Tales take 7 hours, and Wales take 1 hour. What is the contribution margin per machine hour for Bales?

Falcon Co. produces a single product. Its normal selling price is $30.00 per unit. The variable costs are $19.00 per unit. Fixed costs are $25,000 for a normal production run of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,500 units and a special price of $20.00 per unit. Falcon Co. has the capacity to handle the special order and, for this order, a variable selling cost of $1.00 per unit would be eliminated. If the order is accepted, what would be the impact on net income?

Super Security Company manufacturers home alarms. Currently it is manufacturing one of its components at a variable cost of $45 and fixed costs of $15 per unit. An outside provider of this component has offered to sell Safe Security the component for $50. Determine the best plan and calculate the savings.

If the company can not cut costs any lower than they already are what would the profit margin on sales be if they meet the market selling price?

Activity-based costing is determined by charging products for only the services (activities) they used during production.

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.

Jay Company uses the total cost concept of applying the cost-plus approach to product pricing. The costs and expenses of producing and selling 38,400 units of Product E are as follows:

Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling prices are: $55; $78; and $32, respectively. The variable costs for each product are: $20; $50; and $15, respectively. Each product must go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to process, Tales take 7 hours, and Wales take 1 hour. What is the contribution margin per machine hour for Tales?

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.

Using the variable cost concept determine the selling price for 30,000 units using the following data: Variable cost per unit $15.00, total fixed costs $90,000 and desired profit $150,000.

Match each of the following terms with the best definition given.

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?

Differential analysis can aid management in making decisions on a variety of alternatives, including whether to discontinue an unprofitable segment and whether to replace usable plant assets.

If the company meets the new target cost number, how much will they have to cut costs per unit, if any?