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Exam 9: Differential Analysis, Product Pricing, and Activity-Based Costing

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Question 81

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Peyton Company manufactures Phone X and Phone Y.Peyton 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?

A) X is more profitable than Y.
B) Y is more profitable than X.
C) Neither X nor Y is profitable.
D) X and Y are equally profitable.

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

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Question 82

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

A) desired profit
B) total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit
C) total costs plus desired profit
D) total selling and administrative expenses plus desired profit

E) C) and D)
F) B) and D)

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Question 83

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Goshawks Co.produces an automotive product and incurs total manufacturing costs of $2,600,000 in the production of 80,000 units.The company desires to earn a profit equal to a 12% rate of return on assets of $960,000.Total selling and administrative expenses are $105,000. a Calculate the markup percentage, using the product cost concept. b Compute the selling price per unit of the automotive product.

A practical approach that is frequently used by managers when setting normal long-run prices is the cost-plus approach.

Match each of the definitions that follow with the term a-e it defines. -Strategy that focuses on reducing bottlenecks

The unit selling price for the company's product is

What is the overhead allocated to Product B using activity-based costing?

Match each of the definitions that follow with the term a-e it defines. -Target selling price to be achieved in the long term

What is the differential cost of producing Product D?

Keating Co.is considering disposing of equipment that cost $50,000 and has $40,000 of accumulated depreciation to date.Keating Co.can sell the equipment through a broker for $25,000 less 5% commission.Alternatively, Gunner Co.has offered to lease the equipment for five years for a total of $48,750.Keating will incur repair, insurance, and property tax expenses estimated at $8,000 over the five-year period.At lease-end, the equipment is expected to have no residual value.The net differential income from the lease alternative is

Jacoby Company received an offer from an exporter for 30,000 units of product at $15 per unit.The acceptance of the offer will not affect normal production or domestic sales prices.The following data are available: What is the differential revenue from the acceptance of the offer?

Should the special order be accepted?

What is the activity rate for material handling?

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

What is the contribution margin per machine hour for Tales?

What is the differential revenue from the acceptance of the offer?

Jay Company uses the total cost concept of applying the cost-plus approach to product pricing.The costs and expenses of producing and selling 38,400 units of Product E are as follows: Jay desires a profit equal to a 14% rate of return on invested assets of $640,000. a Determine the amount of desired profit from the production and sale of Product E. b Determine the total costs and the cost amount per unit for the production and sale of 38,400 units of Product E. c Determine the markup percentage for Product E. d Determine the selling price of Product E.

Airflow Company sells a product in a competitive marketplace.Market analysis indicates that the product would probably sell at $28.00 per unit.Airflow management desires a profit equal to a 20% rate of return on invested assets of $1,400,000.Airflow anticipates selling 50,000 units.The current full cost per unit for the product is $25 per unit. a What is the amount of profit per unit? b What is the target cost per unit if Airflow meets the market dictated price and management's desired profit?

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.

Mighty Safe Fire Alarm is currently buying 50,000 motherboards from MotherBoard, Inc.at a price of $65 per board.Mighty Safe is considering making its own boards.The costs to make the board are as follows: direct materials, $32 per unit; direct labor, $10 per unit; and variable factory overhead, $16.00 per unit.Fixed costs for the plant would increase by $75,000.Which option should be selected and why?