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

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Question 91

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Yakking Co. manufactures mobile cellular equipment and develops a price for the product by using the variable cost concept. Yakking incurs variable costs of $1,900,000 in the production of 100,000 units while fixed costs total $50,000. The company employs $4,725,000 of assets and wishes to earn a profit equal to a 10% rate of return on assets. a) Compute a markup percentage based on variable cost. b) Determine a selling price. Round your markup percentage to one decimal place, and other intermediate calculations and final answer to two decimal places.

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Question 92

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Yasmin Co. can further process Product B to produce Product C. Product B is currently selling for $30 per pound and costs $28 per pound to produce. Product C would sell for $55 per pound and would require an additional cost of $31 per pound to produce. What is the differential cost of producing Product C?

A) $30 per pound
B) $31 per pound
C) $28 per pound
D) $55 per pound

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

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Question 93

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Product J is one of the many products manufactured and sold by Oceanside Company. An income statement by product line for the past year indicated a net loss for Product J of $12,250. This net loss resulted from sales of $275,000, cost of goods sold of $186,500, and operating expenses of $85,750. It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 40% of the operating expense is fixed. If Product J is retained, the revenue, costs, and expenses are not expected to change significantly from those of the current year. Because of the large number of products manufactured, the total fixed costs and expenses are not expected to decline significantly if Product J is discontinued. Prepare a differential analysis report, dated February 8 of the current year, on the proposal to discontinue Product J.

A bottleneck begins when demand for the company's product exceeds the ability to produce the product.

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

What pricing concept is used if all costs are considered and a fair markup is added to determine the selling price?

The dollar amount of desired profit from the production and sale of the company's product is

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 Desired profit

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

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.

The unit selling price for the company's product is

Hummingbird Company uses the product cost concept of applying the cost-plus approach to product pricing. The costs and expenses of producing 25,000 units of Product K are as follows: Variable costs: $\begin{array}{lc}\text { Direct materials } & \$ 2.50 \\\text { Direct labor } & 4.25 \\\text { Factory overhead } & 1.25 \\\text { Selling and administrative expenses } & 0.50 \\\quad \text { Total } & \$ 8.50\\\text { Fixed costs: }\\\text { Factory overhead } & \$ 25,000 \\\text { Selling and administrative expenses } & 17,000\end{array}$ Hummingbird desires a profit equal to a 5% rate of return on invested assets of $642,500. a) Determine the amount of desired profit from the production and sale of Product K. b) Determine the total manufacturing costs and the cost amount per unit for the production of 25,000 units of Product K. c) Determine the markup percentage for Product K. d) Determine the selling price of Product K. Round your markup percentage to one decimal place, and other intermediate calculations and final answer to two decimal places.

Peyton Company manufactures Phone X and Phone Y. Peyton can sell all it can make of either. Based on the following data, assuming the number of hours is a constraint, which statement is true?

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.

The Sierra Company produces its 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 and the desired profit is $28 per unit. Determine the markup percentage using the a) total cost, b) product cost, and c) variable cost concept.

When a segment of a company is showing a net loss, it is always best to discontinue the segment in order not to continue with losses.