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Exam 25: Differential Analysis and Product Pricing

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Question 21

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Snipe Company has been purchasing a component, Part Q, for $19.20 a 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, determined by the absorption costing method, 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.

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Question 22

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Gull Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine has a book value of $5,000 and its remaining useful life is 5 years. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 and annual operating costs would be $1,500. The new machine has an estimated useful life of 5 years. Should the machine be replaced? Support your answer with calculations.

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The machine should n...

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Question 23

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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 total cost.

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

Under the variable cost concept, only variable costs are included in the cost amount per unit to which the markup is added.

The Bitterns Company produces their product at a total cost of $89 per unit. Of this amount $14 per unit is selling and administrative costs. The total variable cost is $58 per unit. The desired profit is $25 per unit. Determine the mark up percentage on (a) total cost, (b) product cost and (c) variable cost concepts.

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

The product 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.

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?

Mallard Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000. The unit selling price for the company's product is:

The Stewart Cake Factory owns a building for its operations. Stewart uses only half of the building and is considering two options for the unused space. The Candy Store would like to purchase the half of the building that is not being used for $550,000. A 7% commission would have to be paid at the time of purchase. Ice Cream Delight would like to lease the half of the building for the next 5 years at $100,000 each year. Stewart would have to continue paying $9,000 of property taxes each year and $1,000 of yearly insurance on the property, according to the proposed lease agreement. Determine the differential income or loss from the lease alternative.

The amount of income that would result from an alternative use of cash is called:

Discontinuing a segment or product may not be the best choice when the segment is contributing to fixed expenses.

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 per machine hour for Wales?

A business is considering a cash outlay of $300,000 for the purchase of land, which it could lease for $36,000 per year. If alternative investments are available which yield an 18% return, the opportunity cost of the purchase of the land is:

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?

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: Jay desires a profit equal to a 14% rate of return on invested assets of $640,000.

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 total overhead allocated to Product A using activity-based costing?

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

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