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Exam 12: Differential Analysis and Product Pricing

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Question 41

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

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

E) A) and C)
F) A) and D)

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Question 42

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Kirk Co. manufactures mobile cellular equipment and develops a price for the product by using a variable cost concept. Kirk incurs variable costs of $1,900,000 in the production of 100,000 units. Fixed costs total $50,000. The company employs $4,725,000 of assets and wishes to earn a profit equal to a 10% rate of return on assets. (a)Compute a markup percentage based on the variable costs concept. (b) Detemine a selling price.

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\text { Markup Pe...

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Question 43

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Managers who often make special pricing decisions are more likely to use which of the following cost concepts in their work?

Granger Co. can further process Product B to produce C. Product B is currently selling for $55 per pound and costs $42 per pound to produce. Product C would sell for $82 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?

When choosing whether or not to replace a fixed asset, management will consider the price at which the asset can be sold.

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.

Soap Company manufactures Soap X and Soap Y and can sell all it can make of either. Hours available to produce the products is the constrained resources. Based on the following data, if Soap could reduce the processing time for X by 10%, which of the following statements is true? $\begin{array}{|c|c|l|}\hline\mathrm{Y} & \mathrm{X}\\\hline \$ 25 & \$ 20 & \text { Sales Price } \\\hline 15 & 14 & \text { Variable Cost } \\\hline 5 & 3 & \text { Hours needed to process } \\\hline\end{array}$

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?

A business received an offer from an exporter for 5,000 units of product at $10 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: $\begin{array}{lrr} \text { Domestic urit sales price } &\$12\\ \text { Unit manufactuing costs } &\\ \text { Variable } &9\\ \text { Fixed} &1\\\end{array}$ Based on the above data, what is the differential revenue from the acceptance of the offer?

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

Brickman's Pharmacy sells a variety of products. The business is divided into four segments or departments for reporting purposes. The departments and their operating results are shown below: The fixed costs consist of insurance, property taxes, interest, and other costs that will not be eliminated if a department is discontinued. Brickman's management is considering eliminating the grocery department. Assuming sales in the other departments will not be affected by dropping the grocery department, what will be the effect on the company's total operating income?

Raphael Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 50,000 units of its sole product. Raphael desires a profit equal to a 12% rate of return on invested assets of $1,000,000. $\begin{array}{ll}\$ 80,000.00 & \text { Fixed factory overhead cost } \\50,000.00 & \text { Fixed selling and administrative costs } \\5.00 & \text { Variable direct materials cost per urit } \\8.50 & \text { Variable direct labor cost per unit } \\2.50 & \text { Variable factory overhead cost per urit } \\1.00 & \text { Variable selling and admiristrative cost per urit }\end{array}$ Refer to the information provided for Raphael Corporation. The dollar amount of desired profit from the production and sale of the company's product is:

The theory of constraints is a manufacturing strategy that focuses on reducing the influence of bottlenecks on production processes.

In deciding whether to accept business at a special price when the company is operating at full capacity, the special price should be set high enough to cover all fixed and variable costs and expenses.

Bythel Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Bythel desires a profit equal to a 10.8% rate of return on invested assets of $900,000. $\begin{array}{ll}\$ 72,000 & \text { Fixed factory overhead cost } \\45,000 & \text { Fixed selling and administrative costs } \\4.50 & \text { Variable direct materials cost per unit } \\7.65 & \text { Variable direct labor cost per unit } \\2.25 & \text { Variable factory overhead cost per unit } \\0.90 & \text { Variable selling and administrative cost per unit }\end{array}$ Refer to the information provided for Bythel Corporation. The unit selling price for the company's product is:

A cost that will not be affected by later decisions is termed as sunk cost.

Bythel Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Bythel desires a profit equal to a 10.8% rate of return on invested assets of $900,000. $\begin{array}{ll}\$ 72,000 & \text { Fixed factory overhead cost } \\45,000 & \text { Fixed selling and administrative costs } \\4.50 & \text { Variable direct materials cost per unit } \\7.65 & \text { Variable direct labor cost per unit } \\2.25 & \text { Variable factory overhead cost per unit } \\0.90 & \text { Variable selling and administrative cost per unit }\end{array}$ Refer to the information provided for Bythel Corporation. The markup percentage for the company's product is:

In deciding whether to accept business at a special price when the company is operating below full capacity, the special price should be set high enough to cover both the fixed and variable costs.

Bythel Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Bythel desires a profit equal to a 10.8% rate of return on invested assets of $900,000. $\begin{array}{ll}\$ 72,000 & \text { Fixed factory overhead cost } \\45,000 & \text { Fixed selling and administrative costs } \\4.50 & \text { Variable direct materials cost per unit } \\7.65 & \text { Variable direct labor cost per unit } \\2.25 & \text { Variable factory overhead cost per unit } \\0.90 & \text { Variable selling and administrative cost per unit }\end{array}$ Refer to the information provided for Bythel Corporation. The dollar amount of desired profit from the production and sale of the company's product is:

The revenue that is forgone from an alternative use of an asset, such as cash, is called an opportunity cost.