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Exam 12: Differential Analysis and Product Pricing

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Question 51

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Quick Company has been purchasing a component,Part Q,for $20 a unit.Quick is currently operating at 70% of capacity and no significant increase in production is anticipated in the near future.The cost of manufacturing a unit of Part Q,determined by absorption costing methods,is estimated as follows: Prepare a differential analysis report,dated March 12 of the current year,on the decision to make or buy Part Q.

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Question 52

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

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Question 53

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A business is considering a cash outlay of $500,000 for the purchase of land,which it could lease for $40,000 per year.If alternative investments are available that yield a 21% return,the opportunity cost of the purchase of the land is

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

When eliminating a product or segment of a business,the fixed costs pertaining to the product or segment will always be eliminated.

When choosing whether or NOT to replace usable fixed assets,management should consider the price at which the asset can be sold.

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

The condensed income statement for a business for the past year is presented 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 Products F and H.What is the amount of change in net income for the current year that will result from the discontinuance of Product G?

In attempting to improve profitability when faced with a bottleneck that is involved in the production of two or more products,which of the following is most important for management to consider?

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

Sanchez Company is considering replacing equipment that originally cost $300,000 and that has $280,000 accumulated depreciation to date.A new machine will cost $450,000.What is the sunk cost in this situation?

Which equation better describes target costing?

The amount of income that would result from an alternative use of cash is called opportunity cost.

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

The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an alternative is termed

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

Differential analysis can aid management in making decisions on a variety of alternatives,including whether to discontinue an unprofitable segment and whether to replace usable plant assets.

The markup percentage for the company's product is

Tidewater Company uses the product cost concept of applying the cost-plus approach to product pricing.The cost and expenses of producing and selling 50,000 units of Product K are as follows: Tidewater desires a profit equal to a 10% rate of return on invested assets of $1,285,000.

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