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Exam 24: Differential Analysis and Product Pricing

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Question 31

True/False

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Make-or-buy options often arise when a manufacturer has excess productive capacity in the form of unused equipment,space,and labor.

A) True
B) False

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Question 32

Multiple Choice

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What is the differential cost of producing Product D?

A) $6.50 per pound
B) $8.55 per pound
C) $17.00 per pound
D) $5.25 per pound

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

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Question 33

Multiple Choice

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What is the desired profit per unit?

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.

Sparrow Co.is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $8.00 a unit.The unit cost for Sparrow Co.to make the part is $9.00,which includes $0.60 of fixed costs.If 4,000 units of the part are normally purchased each year but could be manufactured using unused capacity,what would be the amount of differential cost increase or decrease for making the part rather than purchasing it?

Nighthawk Inc.is considering disposing of an old machine with a book value of $22,500 and an estimated remaining life of three years.The old machine can be sold for $6,250.A new machine with a purchase price of $68,750 is being considered a replacement.It will have a useful life of three years and no residual value.It is estimated that the annual variable manufacturing costs will be reduced from $43,750 to $20,000 if the new machine is purchased.The differential effect on income for the entire three years for the new machine is

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?

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? ​

The lowest contribution margin per scarce resource is the most profitable.

Relevant revenues and costs refer to

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. ​

Hadley Company is considering the disposal of equipment that is no longer needed for operations.The equipment originally cost $600,000 and accumulated depreciation to date totals $460,000.An offer has been received to lease the machine for its remaining useful life for a total of $290,000,after which the equipment will have no salvage value.The repair,insurance,and property tax expenses that would be incurred by Hadley on the machine during the period of the lease are estimated at $75,800.Alternatively,the equipment can be sold through a broker for $230,000 less a 10% commission. ​ Prepare a differential analysis report,dated June 15,on whether the equipment should be leased or sold.

Target costing is arrived at by taking

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 their costs is as follows: ​ Should Piper Rose Boutique accept the special order made by the college?

In using the variable cost concept of applying the cost-plus approach to product pricing,fixed manufacturing costs and both fixed and variable selling and administrative expenses must be covered by the markup.

When estimated costs are used in applying the cost-plus approach to product pricing,the estimates should be based upon normal levels of performance.

In using the variable cost concept of applying the cost-plus approach to product pricing,fixed manufacturing costs and fixed selling and administrative expenses must be covered by the markup.

Delaney Company is considering replacing equipment which originally cost $600,000 and which has $420,000 accumulated depreciation to date.A new machine will cost $790,000 and the old equipment can be sold for $8,000.What is the sunk cost in this situation?

What is the total overhead allocated to Product A using activity-based costing?

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