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Exam 25: Differential Analysis and Product Pricing

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Question 71

Multiple Choice

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The condensed income statement for a Fletcher Inc. for the past year is as follows: Management is considering the discontinuance of the manufacture and sale of Product G 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 Products F and H. The amount of change in profit for the current year that will result from the discontinuance of Product G is a

A) $20,000 increase
B) $30,000 increase
C) $20,000 decrease
D) $30,000 decrease

E) C) and D)
F) All of the above

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Question 72

Multiple Choice

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Assuming that Widgeon Co. can sell all of the products it can make, the maximum contribution margin it can earn per month is

A) $49,000
B) $70,000
C) $56,000
D) $34,000

E) B) and C)
F) A) and B)

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Question 73

Multiple Choice

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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 margin per machine hour for Tales is

When using the variable cost method of applying the cost-plus approach to product pricing, which of the following is included in the markup?

Piper Rose Boutique has been approached by the community college to make special polo shirts for the faculty and staff. The college is willing to buy 4,000 polos with its own design for $6.00 each. The company normally sells its shirts for $12.00 each. The company has enough excess capacity to make this order. A breakdown of the costs is as follows: Should Piper Rose Boutique accept the special order made by the college? Show computations, but a formal differential analysis report is not required.

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. -Includes manufacturing costs plus selling and administrative expenses in the total cost per unit before markup A)Total cost method B)Variable cost method C)Normal selling price D)Product cost method E)Yield pricing

Yield pricing practices are common in low-fixed-cost service businesses.

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

MZE Manufacturing Company has a normal plant capacity of 37,500 units per month. Because of an extra-large quantity of inventory on hand, it expects to produce only 30,000 units in May. Monthly fixed costs and expenses are $112,500 ($3.00 per unit at normal plant capacity) and variable costs and expenses are $8.25 per unit. The present selling price is $13.50 per unit. The company has an opportunity to sell 7,500 additional units at $9.90 per unit to an exporter who plans to market the product under its own brand name in a foreign market. The additional business is therefore not expected to affect the regular selling price or quantity of sales of MZE Manufacturing Company.​ Should MZE reject or accept the special order? Prepare a differential analysis report dated April 21 of the current year to support your answer.

Mallory Company uses the product cost method of applying the cost-plus approach to product pricing. It produces and sells Product X at a total cost of $35 per unit, of which $28 is product cost and $7 is selling and administrative expenses. In addition, the total cost of $35 is made up of $24 variable cost and $11 fixed cost. The desired profit is $8 per unit. Determine the markup percentage on product cost.

Which of the following price-setting methods considers the price that other providers charge for the same product?

The differential revenue of producing Product D is

Piper Corp. is operating at 70% of capacity and is currently purchasing a part used in its manufacturing operations for $24 per unit. The unit cost for the business to make the part is $36, including fixed costs, and $26, not including fixed costs. If 15,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, the amount of differential cost increase or decrease from making the part rather than purchasing it would be a

Airflow Company sells a product in a competitive marketplace. Market analysis indicates that the product would probably sell at $28.00 per unit. Airflow management desires a profit equal to a 20% return on invested assets of $1,400,000. Airflow anticipates selling 50,000 units. The current full cost per unit for the product is $25.00 per unit.​ a. What is the amount of profit per unit? b. What is the target cost per unit if Airflow meets the market dictated price and management's desired profit?

The target costing method assumes that

Goshawks Co. produces an automotive product and incurs total manufacturing costs of $2,600,000 in the production of 80,000 units. The company desires to earn a profit equal to a 12% return on assets of $960,000. Total selling and administrative expenses are $105,000. a.Determine the markup percentage, using the product cost method. b.Compute the selling price per unit of the automotive product.Round the markup percentage to one decimal place and other intermediate computations and final answer to two decimal places.

Magpie Corporation uses the total cost method of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% return on invested assets of $700,000.​ ​ -The markup percentage on total cost for Magpie's product is

Lofty Airlines has a flight for which the regular ticket price is $200 and the variable costs per passenger are $50. Fixed costs assigned to each flight are $12,000. Each flight has a capacity of 125 seats, with an average of 95 seats sold at the regular price. To attract customers to the last 30 unsold seats, Lofty discounts the tickets by 50% for standby passengers. The break-even number of regular-priced seats per flight is

Stryker Industries received an offer from an exporter for 15,000 units of product at $17.50 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: ​ -The amount of profit or loss from acceptance of the offer is a

Businesses with fixed capacity will charge higher prices when demand is low in an effort to cover fixed costs.