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

Discontinuing a segment or product may not be the best choice when the segment is contributing to fixed expenses.

The Mallory Company produces and sells Product X at a total cost of $35 per unit, of which $28 is product cost and $7 is selling and administrative expenses. In addition, the total cost of $35 is made up of $24 variable cost and $11 fixed cost. The desired profit is $8 per unit. Determine the markup percentage on product cost.

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. Round your markup percentage to one decimal place, and other intermediate calculations and final answer to two decimal places.

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

Moon Company uses the variable cost concept of applying the cost-plus approach to product pricing. The costs and expenses of producing and selling 75,000 units of Product T are as follows: Variable costs: Direct materials \ 7.00 Direct labor 3.50 Factory overhead 1.50 Selling and admini strative expenses 3.00 Total \1 5.00 Fixed costs: Factory overhead \ 45,000 Selling and administrative expenses 20,000 Moon desires a profit equal to an18% rate of return on invested assets of $1,440,000. a) Determine the amount of desired profit from the production and sale of Product T. b) Determine the total variable costs for the production and sale of 75,000 units of Product T. c) Determine the markup percentage for Product T. d) Determine the unit selling price of Product T. Round your markup percentage to one decimal place and other intermediate calculations and final answer to two decimal places.

Discontinuing a product or segment is a huge decision that must be carefully analyzed. Which of the following would be a valid reason not to discontinue an operation?

Since the costs of producing an intermediate product do not change regardless of whether the intermediate product is sold or processed further, these costs are not considered in deciding whether to further process a product.

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

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. Loving Home Care Condensed Income Statement

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

Using the variable cost concept, determine the markup per unit for 30,000 units using the following data: Variable cost per unit $15)00 Total fixed costs $90,000 Desired profit

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: Activity Cost Activity Base Production setup \ 250,000 Number of setups Material handling 150,000 Number of parts General overhead 80,000 Number of direct labor hours Each product's total activity in each of the three areas are as follows: Product A Product B Number of setups 100 300 Number of parts 40,000 20,000 Number of direct labor hours 8,000 12,000 -What is the activity rate for material handling?

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 their costs is as follows: Direct materials \ 2.00 Direct labor 0.50 Variable costs 1.50 Fixed costs 2.50 Total cost per unit \ 6.50 Should Piper Rose Boutique accept the special order made by the college?

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?

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

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

Which product has the highest contribution margin per machine hour?

Assume that Widgeon produced enough product with the highest contribution margin per unit to use 1,000 hours of machine time. Product demand does not warrant any more production of that product. What is the maximum additional contribution margin that can be realized by utilizing the remaining 1,000 hours on the product with the second highest contribution margin per hour?

Match each of the definitions that follow with the term a-e) it defines. -Includes manufacturing costs plus selling and administrative expenses

If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $12.