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Exam 24: Differential Analysis, Product Pricing, and Activity-Based Costing

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Question 61

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What cost concept used in applying the cost-plus approach to product pricing covers selling expenses, administrative expenses, and desired profit in the markup?

A) total cost concept
B) product cost concept
C) variable cost concept
D) sunk cost concept

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

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Question 62

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Use this information for Swan Company to answer the questions that follow. Swan Company produces a 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, and the desired profit is $20 per unit. -Determine the markup percentage on variable cost.

A) 100%
B) 110%
C) 80%
D) 46.5%

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

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Question 63

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

Lockrite Security Company manufacturers home alarms. Currently, it is manufacturing one of its components at a total cost of $45, which includes fixed costs of $15 per unit. An outside provider of this component has offered to sell Lockrite the component for $40. Provide a differential analysis of the outside purchase proposal.

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

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

Gull Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine has a book value of $5,000, and its remaining useful life is five years. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 with annual operating costs of $1,500. The new machine has an estimated useful life of five years.​Should the machine be replaced?

Sierra Company produces its product at a total cost of $89 per unit. Of this amount, $14 per unit is selling and administrative costs. The total variable cost is $58 per unit and the desired profit is $28 per unit.?Determine the markup percentage using the (a) total cost, (b) product cost, and (c) variable cost concepts.

Use this information for Magpie Corporation to answer the questions that follow. ​ Magpie Corporation uses the total cost concept of product pricing. Below is the 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. ​ ​ $\begin{array} { l r } \text { Fixed factory overhead cost } & \$ 38,700 \\\text { Fixed selling and administrative costs } & 7,500 \\\text { Variable direct materials cost per unit } & 4.60 \\\text { Variable direct labor cost per unit } & 1.88 \\\text { Variable factory overhead cost per unit } & 1.13 \\\text { Variable selling and administrative cost per unit } & 4.50\end{array}$ -The dollar amount of the desired profit from the production and sale of the company's product is

A cost that will not be affected by later decisions is termed a

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?

A commercial oven with a book value of $67,000 has an estimated remaining five-year life. A proposal is offered to sell the oven for $8,500 and replace it with a new oven costing $110,000. The new machine has a five-year life with no residual value. The new machine would reduce annual maintenance costs by $23,000. Provide a differential analysis on the proposal to replace the commercial oven.

The condensed income statement of Fletcher Inc. for the past year is as follows:​ Management is considering the discontinuance of the manufacture and sale of Product G at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Product F and Product H. What is the amount of change in net income for the current year that will result from the discontinuance of Product G?

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

What is the contribution margin per machine hour for Tales?

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.​ ​

Use this information for Swan Company to answer the questions that follow. Swan Company produces a 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, and the desired profit is $20 per unit. -What is the activity rate for materials handling?

Which equation better describes target costing?

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.

Activity-based costing provides more accurate and useful cost data than traditional systems.