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

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Question 31

True/False

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When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.

A) True
B) False

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Question 32

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Match each definition that follows with the term (a-e) it defines. -Sets the price according to competitors

A) Demand-based concept
B) Competition-based concept
C) Product cost concept
D) Target costing
E) Production bottleneck

F) B) and E)
G) B) and D)

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Question 33

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Use this information for Mallard Corporation to answer the questions that follow. ​ Mallard Corporation uses the product cost concept of product pricing. Below is the 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. ​ $\begin{array} { l r } \text { Fixed factory overhead cost } & \$ 82,000 \\\text { Fixed selling and administrative costs } & 45,000 \\\text { Variable direct materials cost per unit } & 5.50 \\\text { Variable direct labor cost per unit } & 7.65 \\\text { Variable factory overhead cost per unit } & 2.25 \\\text { Variable selling and administrative cost per unit } & 0.90\end{array}$ -The unit selling price for the company's product is

Sensational Soft Drinks makes three products: iced tea, soda, and lemonade. The following data are available:? $\begin{array} { l r r r } & \text { Iced Tea } & \text { Soda } & \text { Lemonade } \\\text { Sales price per unit } & \$ 0.90 & \$ 0.60 & \$ 0.50 \\\text { Variable cost per unit } & 0.30 & 0.15 & 0.10 \\\text { Contribution margin per unit } & \underline { \$ 0.60 } & \mathbf { \$ 0 . 4 5 } & \mathbf { \$ 0 . 4 0 }\end{array}$ Sensational is experiencing a bottleneck in one of its processes that affects each product as follows: (a)Using a theory of constraints (TOC) approach, rank the products in terms of profitability. (b)What price for lemonade would equate its profitability (contribution margin per bottleneck hour) to that of soda?

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.

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:​ Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Q.

Match each definition that follows with the term (a-e) it defines. -Target selling price to be achieved in the long term

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

Use this information for Magpie Corporation to answer the questions that follow. ​ Magpie Corporation uses the total cost concept of product pricing. Below is the cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000. ​ ​ $\begin{array} { l r } \text { Fixed factory overhead cost } & \$ 38,700 \\\text { Fixed selling and administrative costs } & 7,500 \\\text { Variable direct materials cost per unit } & 4.60 \\\text { Variable direct labor cost per unit } & 1.88 \\\text { Variable factory overhead cost per unit } & 1.13 \\\text { Variable selling and administrative cost per unit } & 4.50\end{array}$ -Contractors who sell to government agencies would be most likely to use which of the following cost concepts in pricing their products?

Diamond Boot Factory normally sells its specialty boots for $375 a pair. An offer to buy 100 boots for $275 per pair was made by an organization hosting a national event in Norfolk. The variable cost per boot is $250 and special stitching will add another $20 per pair to the cost. Determine the differential income or loss per pair of boots from selling to the organization.

Target costing is arrived at by taking the

The differential cost of producing Product P over Product O is $55 per pound.

Match each definition that follows with the term (a-e) it defines. -Only includes the costs of manufacturing in product cost per unit

Use this information for Magpie Corporation to answer the questions that follow. ​ Magpie Corporation uses the total cost concept of product pricing. Below is the cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000. ​ ​ $\begin{array} { l r } \text { Fixed factory overhead cost } & \$ 38,700 \\\text { Fixed selling and administrative costs } & 7,500 \\\text { Variable direct materials cost per unit } & 4.60 \\\text { Variable direct labor cost per unit } & 1.88 \\\text { Variable factory overhead cost per unit } & 1.13 \\\text { Variable selling and administrative cost per unit } & 4.50\end{array}$ -The unit selling price for the company's product is

What is the desired profit per unit?

A practical approach that is frequently used by managers when setting normal long-run prices is

The desired selling price for a product will be the same under both variable and total costs.

What pricing concept considers the price that other providers charge for the same product?

Match each definition that follows with the term (a-e) it defines. -Revenue forgone from an alternative use of an asset

Which of the following would be considered a sunk cost?