Question 1

The differential cost of producing Product P is $55 per pound.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  $175,000 
B)  $67,200 
C)  $73,500 
D)  $96,000 
A)  $175,000 
B)  $67,200 
C)  $73,500 
D)  $96,000

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  $300,000 
B)  $262,500 
C)  $52,500 
D)  $250,000 
A)  $300,000 
B)  $262,500 
C)  $52,500 
D)  $250,000

Question 5

Magpie Corporation uses the total cost concept of product pricing. Below is 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. $$\begin{array} { l l } 
\text { Fixed factory overhead cost } & \$ 38,700 \
\text { Fixed selling and administrative costs } & 7,500 \
\text { Variable direct materials cost per unit } & 4.60 \
\text { Variable direct labor cost per unit } & 1.88 \
\text { Variable factory overhead cost per unit } & 1.13 \
\text { Variable selling and administrative cost per unit } & 4.50
\end{array}$$
-The cost per unit for the production and sale of the company's product is

Accepted Answer

A)  $12.11 
B)  $12.88 
C)  $15.00 
D)  $13.50 
A)  $12.11 
B)  $12.88 
C)  $15.00 
D)  $13.50

Question 6

Jarrett Company is considering a cash outlay of $300,000 for the purchase of land, which it could lease out for $36,000 per year. If alternative investments are available that yield a 9% return, the opportunity cost of the purchase of the land is

Accepted Answer

A)  $27,000 
B)  $36,000 
C)  $9,000 
D)  $72,000 
A)  $27,000 
B)  $36,000 
C)  $9,000 
D)  $72,000

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

When estimated costs are used in applying the cost-plus approach to product pricing, the estimates should be based upon ideal levels of performance.

Accepted Answer

A) True 
 B)False

Question 12

Match each of the definitions that follow with the term a-e) it defines.
-Not relevant to future decisions

Accepted Answer

A) Opportunity cost 
B) Sunk cost 
C) Theory of constraints 
D) Differential analysis 
E) Product cost distortion 
A) Opportunity cost 
B) Sunk cost 
C) Theory of constraints 
D) Differential analysis 
E) Product cost distortion

Question 13

A bottleneck happens when a key piece of manufacturing machinery can produce 1,000 units per hour and demand for the product supports a production rate of 1,200 units per hour.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following reasons would cause a company to reject an offer to accept business at a special price?

Accepted Answer

A)  The additional sale will not conflict with regular sales. 
B)  The additional sales will increase differential income. 
C)  The additional sales will not increase fixed expenses. 
D)  The additional sales will increase fixed expenses. 
A)  The additional sale will not conflict with regular sales. 
B)  The additional sales will increase differential income. 
C)  The additional sales will not increase fixed expenses. 
D)  The additional sales will increase fixed expenses.

Question 15

Determine the markup percentage on variable cost.

Accepted Answer

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

Question 16

Mallard 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. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000. $\begin{array}{lc}
\text { Fixed factory overhead cost } & \$ 82,000 \
\text { Fixed selling and administrative costs } & 45,000 \
\text { Variable direct materials cost per unit } & 5.50\
\text { Variable direct labor cost per unit } & 7.65 \
\text { Variable factory overhead cost per unit } & 2.25 \
\text { Variable selling and administrative cost per unit } & 0.90
\end{array}$
-The cost per unit for the production of the company's product is

Accepted Answer

A)  $13.15 
B)  $17.22 
C)  $15.40 
D)  $15.75 
A)  $13.15 
B)  $17.22 
C)  $15.40 
D)  $15.75

Question 17

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 activity­based costing to allocate overhead to products. An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities: $$\begin{array} { | l | l | c | } 
\hline \text { Activity } & \text { Cost } & \text { Activity Base } \
\hline \text { Production setup } & \$ 250,000 & \text { Number of setups } \
\hline \text { Material handling } & 150,000 & \text { Number of parts } \
\hline \text { General overhead } & 80,000 & \text { Number of direct labor hours } \
\hline
\end{array}$$ Each product's total activity in each of the three areas are as follows: $$\begin{array} { | l | l | l | } 
\hline & \text { Product A } & \text { Product B } \
\hline \text { Number of setups } & 100 & 300 \
\hline \text { Number of parts } & 40,000 & 20,000 \
\hline \text { Number of direct labor hours } & 8,000 & 12,000 \
\hline
\end{array}$$
-What is the activity rate for production setup?

Accepted Answer

A)  $2,500 per setup 
B)  $833 per setup 
C)  $625 per setup 
D)  $400 per setup 
A)  $2,500 per setup 
B)  $833 per setup 
C)  $625 per setup 
D)  $400 per setup

Question 18

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

Accepted Answer

A)  period cost 
B)  product cost 
C)  differential cost 
D)  discretionary cost 
A)  period cost 
B)  product cost 
C)  differential cost 
D)  discretionary cost

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

What is the target cost of the company's product?

Accepted Answer

A)  $44 
B)  $42 
C)  $43 
D)  $40 
A)  $44 
B)  $42 
C)  $43 
D)  $40

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

The differential cost of producing Product P is $55 per pound.

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

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

Jarrett Company is considering a cash outlay of $300,000 for the purchase of land, which it could lease out for $36,000 per year. If alternative investments are available that yield a 9% return, the opportunity cost of the purchase of the land is

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

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

When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.

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

When estimated costs are used in applying the cost-plus approach to product pricing, the estimates should be based upon ideal levels of performance.

Match each of the definitions that follow with the term a-e) it defines. -Not relevant to future decisions

A bottleneck happens when a key piece of manufacturing machinery can produce 1,000 units per hour and demand for the product supports a production rate of 1,200 units per hour.

Which of the following reasons would cause a company to reject an offer to accept business at a special price?

Determine the markup percentage on variable cost.

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

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

What is the target cost of the company's product?

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Lean Principles, Lean Accounting, and Activity Analysis

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