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Exam 25: Differential Analysis and Product Pricing

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Question 81

True/False

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A bottleneck happens when a key piece of manufacturing machinery can produce 1000 units per hour and demand for the product supports a production rate of 1200 units per hour.

A) True
B) False

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Question 82

Multiple Choice

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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 product cost.

A) 80%
B) 46.5%
C) 70%
D) 110%

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

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Question 83

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

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?

The total cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.

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?

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

A business is considering a cash outlay of $250,000 for the purchase of land, which it could lease for $35,000 per year. If alternative investments are available which yield an 18% return, the opportunity cost of the purchase of the land is:

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?

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 revenue of producing Product D?

Paint Company manufactures Paint X and Paint Y and 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,?

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 overhead allocated to Product B using activity-based costing?

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?

Product J is one of the many products manufactured and sold by Oceanside Company. An income statement by product line for the past year indicated a net loss for Product J of $12,250. This net loss resulted from sales of $275,000, cost of goods sold of $186,500, and operating expenses of $85,750. It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 40% of the operating expense is fixed. If Product J is retained, the revenue, costs, and expenses are not expected to change significantly from those of the current year. Because of the large number of products manufactured, the total fixed costs and expenses are not expected to decline significantly if Product J is discontinued. Prepare a differential analysis report, dated February 8 of the current year, on the proposal to discontinue Product J.

Activity-based costing is determined by charging products for only the services (activities) they used during production.

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.

Crane Company Division B recorded sales of $360,000, variable cost of goods sold of $315,000, variable selling expenses of $13,000, and fixed costs of $61,000, creating a loss from operations of $29,000. Determine the differential income or loss from the sales of Division B. Should this division be discontinued?

What pricing concept is used if all costs are considered and a fair mark-up is added to determine the selling price?

Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential revenue of producing Product P is $82 per pound.

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