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Exam 9: Differential Analysis and Product Pricing

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Question 1

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

A) Total cost concept
B) Product cost concept
C) Variable cost concept
D) Fixed cost concept

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

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Question 2

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Under the total cost concept, manufacturing cost plus desired profit is included in the total cost per unit.

A) True
B) False

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Question 3

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Flyer Company sells a product in a competitive marketplace. Market analysis indicates that their product would probably sell at $48 per unit. Flyer management desires a 12.5% profit margin on sales. Their current full cost per unit for the product is $44 per unit. What is the desired profit per unit?

The Swan Company produces their 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 The desired profit is $20 per unit. Determine the mark up percentage on variable cost.

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?

Match each of the following terms with the best definition.

Raven Company is considering replacing equipment which originally cost $500,000 and which has $420,000 accumulated depreciation to date. A new machine will cost $790,000. What is the sunk cost in this situation?

Partridge Co. can further process Product J to produce Product D. Product J is currently selling for $21 per pound and costs $15.75 per pound to produce. Product D would sell for $38 per pound and would require an additional cost of $9.25 per pound to produce. What is the differential cost of producing Product D?

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.

Quail Co. can further process Product B to produce Product C. Product B is currently selling for $60 per pound and costs $42 per pound to produce. Product C would sell for $92 per pound and would require an additional cost of $13 per pound to produce. What is the differential revenue of producing and selling Product C?

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:

Holiday Decorations Unique has been approached by the community college to make special decorations for the faculty and staff. The college is willing to buy 5,000 Christmas ornaments with their own design for $6.00 each. The company normally sells its decorations for $12.00 each. A break down of their costs is as follows: Should Holiday Decorations Unique accept the special order made by the college? The company has enough excess capacity to make this order.

Heston and Burton, CPAs, currently work a five-day week. They estimate that net income for the firm would increase by $75,000 annually if they worked an additional day each month. The cost associated with the decision to continue the practice of a five-day work week is an example of:

Match each of the following terms with the best definition given.

A business 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 $28, not including fixed costs. If 15,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?

Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.

A business received an offer from an exporter for 30,000 units of product at $16 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: What is the amount of the gain or loss from acceptance of the offer?

The product cost concept includes all manufacturing costs in the cost amount to which the markup is added to determine product price.

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

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