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Exam 24: Differential Analysis and Product Pricing

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Question 61

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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 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. Prepare a differential analysis report, dated April 21 of the current year, on the proposal to sell at the special price.

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Question 62

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Magpie Corporation uses the total cost concept 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% rate of return on invested assets of $700,000. The unit selling price for the company's product is:

A) $15.00
B) $13.82
C) $15.80
D) $14.76

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

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Question 63

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Miramar Industries manufactures two products, A and B. The manufacturing operation involves three overhead activities - production setup, material handling, and general factory activities. Miramar uses activity-based costing to allocate overhead to products. An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities: Each product's total activity in each of the three areas are as follows: What is the activity rate for General Overhead?

In deciding whether to accept business at a special price, the short-run price should be set high enough to cover all variable costs and expenses.

A cost that will not be affected by later decisions is termed an opportunity cost.

What cost concept used in applying the cost-plus approach to product pricing includes only total manufacturing costs in the "cost" amount to which the markup is added?

Using the variable cost concept determine the selling price for 30,000 units using the following data: Variable cost per unit $15.00, total fixed costs $90,000 and desired profit $150,000.

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 $.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?

Contractors who sell to government agencies would be most likely to use which of the following cost concepts in pricing their products?

A business is considering a cash outlay of $300,000 for the purchase of land, which it could lease for $36,000 per year. If alternative investments are available which yield an 18% return, the opportunity cost of the purchase of the land is:

When using the total cost concept of applying the cost-plus approach to product pricing, what is included in the markup?

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

An employee of Morgan Corporation has found some partially completed units of Model X in a dusty corner of the warehouse. A job ticket attached to the units indicates that a total of $750 in manufacturing costs have been used to bring the materials to this point in the manufacturing process. The units can be sold in their current condition for $275 to a scrap metal dealer. If Morgan spends $250 to complete the units, they could be sold for $600. Required: A. What should Morgan do? Why? B. Identify the sunk cost, if any.

When using the variable cost concept of applying the cost-plus approach to product pricing, what is included in the markup?

Manufacturers must conform to the Robinson-Patman Act which prohibits price discrimination within the United States unless differences in prices can be justified by different costs of serving different customers.

The Stewart Cake Factory sells chocolate cakes, birthday decorated cakes, and specialty cakes. The factory is experiencing a bottleneck and is trying to determine which cake is more profitable. Even though the company may have to limit the orders that it takes, they are concerned about customer service and satisfaction. (A) Calculate the contribution margin per hour per cake. (B) Determine which cakes the company should try to sell more of first, second, and then last.

Miramar Industries manufactures two products, A and B. The manufacturing operation involves three overhead activities - production setup, material handling, and general factory activities. Miramar uses activity-based costing to allocate overhead to products. An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities: Each product's total activity in each of the three areas are as follows: What is the activity rate for Production Setup?

A cost that will not be affected by later decisions is termed a(n) :

A business received an offer from an exporter for 10,000 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 is available: What is the amount of gain or loss from acceptance of the offer?

If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $12.