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Exam 25: Differential Analysis and Product Pricing

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Question 1

True/False

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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.

A) True
B) False

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Question 2

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Mallard Corporation uses the product cost method 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% return on invested assets of $800,000. ​ -The dollar amount of desired profit from the production and sale of the company's product is

A) $105,840
B) $225,000
C) $96,000
D) $220,500

E) A) and B)
F) None of the above

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Question 3

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Mighty Safe Fire Alarm is currently buying 50,000 motherboards from MotherBoard, Inc., at a price of $65 per board. Mighty Safe is considering making its own boards. The costs to make the board are as follows: direct materials, $32 per unit; direct labor, $10 per unit; and variable factory overhead, $16 per unit. Fixed costs for the plant would increase by $75,000. Which option should be selected and why?

Match each phrase that follows with the term (a-e) it describes. Some terms may not be used and other terms may be used more than once. -Target selling price to be achieved in the long term A)Total cost method B)Variable cost method C)Normal selling price D)Product cost method E)Yield pricing

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 methods.

Ptarmigan Company produces two products. Product A has a contribution margin of $20 and requires 4 machine hours. Product B has a contribution margin of $18 and requires 3 machine hours. Determine the most profitable product assuming the machine hours are the constraint.

Flyer Company sells a product in a competitive marketplace. Market analysis indicates that its product would probably sell at $48 per unit. Flyer management desires a 12.5% profit margin on sales. Flyer's current full cost for the product is $44 per unit.​ -Using the variable cost method, determine the selling price (rounded to the nearest dollar) for 30,000 units using the following data:

Swan Company produces its 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, and the desired profit is $20 per unit.​ -The markup percentage on product cost is

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 five years. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 with annual operating costs of $1,500. The new machine has an estimated useful life of five years.​ Should the machine be replaced? Prepare a differential analysis report to support your answer.

Moon Company uses the variable cost method of applying the cost-plus approach to product pricing. The costs and expenses of producing and selling 75,000 units of Product T are as follows: Moon desires a profit equal to an 18% return on invested assets of $1,440,000. a.Determine the amount of desired profit from the production and sale of Product T. b.Determine the total variable costs for the production and sale of 75,000 units of Product T. c.Determine the markup percentage for Product T. d.Determine the unit selling price of Product T.Round your markup percentage to one decimal place and other intermediate computations and final answer to two decimal places.

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

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 compute the savings assuming fixed costs are unaffected by the decision.

Since the costs of producing an intermediate product do not change regardless of whether the intermediate product is sold or processed further, these costs are not considered in deciding whether to further process a product.

Mallard Corporation uses the product cost method 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% return on invested assets of $800,000. ​ -The cost per unit for the production of the company's product is

Swan Company produces its 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, and the desired profit is $20 per unit.​ -The markup percentage on total cost is a.100.0% b.110.0% c.80.0% d.46.5%

Match each word or phrase that follows with the term (a-e) it describes. -Constraint A)Demand-based method B)Competition-based method C)Product cost method D)Target costing method E)Production bottleneck

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 7 hours; and Wales 1 hour.​ -The contribution per machine hour for Wales is

Oficina Bonita Company manufactures office furniture. An unfinished desk is produced for $36.00 and sold for $65.00. A finished desk can be sold for $75.00. The additional processing cost to complete the finished desk is $5.95. Should the company sell unfinished desks or process further and sell finished desks? Prepare a differential analysis to support your answer.

Dotterel Corporation uses the variable cost method of product pricing. Below is cost information for the production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to an 11.2% return on invested assets of $350,000. ​ -The dollar amount of desired profit from the production and sale of Dotterel's product is

A bottleneck happens when a key piece of manufacturing machinery can produce 1,000 units per hour and demand for the product supports a production rate of 1,200 units per hour.