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Exam 24: Differential Analysis, Product Pricing, and Activity-Based Costing

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Question 41

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An employee of Morgan Corporation has found some partially completed units of Model X in a dusty corner of the warehouse. A job ticket attached to the units indicates that a total of $750 in manufacturing costs have been used to bring the materials to this point in the manufacturing process. The units can be sold in their current condition for $275 to a scrap metal dealer. If Morgan spends $250 to complete the units, they could be sold for $600. a) What should Morgan do? Why? b) Identify the sunk cost, if any.

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a) Morgan should finish the units becaus...

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Question 42

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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.

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Markup per...

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Question 43

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What is the contribution margin per machine hour for Tales?

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: Direct materials$11.50 Direct labor 4.50 Variable factory overhead 1.12 Fixed factory overhead 3.15 Total$20.27 Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Q.

All of the following should be considered in a make-or-buy decision except

Hadley 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 $290,000, after which the equipment will have no salvage value. The repair, insurance, and property tax expenses that would be incurred by Hadley on the machine 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, on whether the equipment should be leased or sold.

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

What cost concept used in applying the cost-plus approach to product pricing covers selling expenses, administrative expenses, and desired profit in the markup?

The differential cost of producing Product P is $13 per pound.

Lockrite Security Company manufacturers home alarms. Currently, it is manufacturing one of its components at a total cost of $45 which includes fixed costs of $15 per unit. An outside provider of this component has offered to sell Lockrite the component for $40. Provide a differential analysis of the outside purchase proposal.

The condensed income statement for a Hayden Corp. 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?

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

Match each of the definitions that follow with the term a-e) it defines. -Evaluation of how income will change based on an alternative course of action

The Canine Company has total estimated factory overhead for the year of $2,400,000, divided into four activities: fabrication, $1,200,000; assembly, $480,000; setup, $400,000; and materials handling, $320,000. Canine manufactures two products, Standard Crates and Deluxe Crates. The activity-base usage quantities for each product by each activity are as follows: Each product is budgeted for 20,000 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.

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. $\begin{array}{lc}\text { Fixed factory overhead cost } & \$ 82,000 \\\text { Fixed selling and administrative costs } & 45,000 \\\text { Variable direct materials cost per unit } & 5.50\\\text { Variable direct labor cost per unit } & 7.65 \\\text { Variable factory overhead cost per unit } & 2.25 \\\text { Variable selling and administrative cost per unit } & 0.90\end{array}$ -The unit selling price for the company's product is

Match the definitions that follow with the term a-e) it defines. -Constraint

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.

What is the contribution margin per machine hour for Bales?

Rowan Quinn Company manufactures kitchen appliances. Currently, it is manufacturing one of its components at a variable cost of $40 and fixed costs of $15 per unit. An outside provider of this component has offered to sell Rowan Quinn the component for $45. Determine the best plan and calculate the savings.

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.