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Exam 9: Differential Analysis, Product Pricing, and Activity-Based Costing

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Question 51

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If the company cannot cut costs any lower than they already are, what would the profit margin on sales be to meet the market selling price?

A) 9.3%
B) 7.3%
C) 10.3%
D) 8.3%

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

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Question 52

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Due to Medicare reimbursement cuts, Loving Home Care is considering shutting down its Certified Nursing Assistant CNA Division.Fixed costs will have to be transferred to the Nursing Division if the CNA division is discontinued.Based on the following income statement make a recommendation to the president regarding this decision. Loving Home Care Condensed Income Statement For the Year Ended December 31

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Question 53

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

Match each of the definitions that follow with the term a-e it defines. -A document that initiates a product or process change

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.

Match each of the definitions that follow with the term a-e it defines. -Changing tooling when preparing for a new product

The target cost approach assumes that:

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.

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:

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

The Porter Beverage Factory owns a building for its operations.Porter uses only half of the building and is considering two options for the unused space.The Popcorn Store would like to purchase the half of the building that is not being used for $550,000.A 5% commission would have to be paid at the time of purchase.Salty Snacks would like to lease the half of the building for the next 5 years at $100,000 each year.Stewart would have to continue paying $15,000 of property taxes each year and $2,000 of yearly insurance on the property, according to the proposed lease agreement. Determine the differential income or loss from the lease alternative.

In addition to the differential costs in an equipment-replacement decision, the remaining useful life of the old equipment and the estimated life of the new equipment are important considerations.

Match the definitions that follow with the term a-e it defines. -Combines market-based pricing with a cost-reduction emphasis

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

Activity-based costing provides more accurate and useful cost data than traditional systems.

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

Falcon Inc.manufactures Product B, incurring variable costs of $15.00 per unit and fixed costs of $70,000.Falcon desires a profit equal to a 12% rate of return on assets, $785,000 of assets are devoted to producing Product B, and 100,000 units are expected to be produced and sold. a Compute the markup percentage, using the total cost concept. b Compute the selling price of Product B. Round your intermediate calculations and final answer to two decimal places.

What cost concept used in applying the cost-plus approach to product pricing includes only desired profit in the markup?

Which of the following is not a cost concept commonly used in applying the cost-plus approach to product pricing?