Exam 12: Differential Analysis and Product Pricing

If the total unit cost of manufacturing Product Y is currently $40 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $8.

Max, Inc.can sell a large piece of machinery for $90,000.The machinery originally cost $240,000 and has accumulated depreciation of $130,000.Max will have to pay a 5% sales commission on the sale.Rather than sell, Max is considering leasing the machine.It can be leased for 4 years for $24,000 per year.Max has estimated future operating expenses to be $3,000 per year, and Max will be responsible for those expenses.Which of the following options most accurately describes the analysis and decision for Max?

Soap Company manufactures Soap X and Soap Y and can sell all it can make of either.Hours available to produce the products is the constrained resources.Based on the following data, if Soap could reduce the processing time for X by 10%, which of the following statements is true? X Y Sales Price \ 20 \ 25 Variable Cost 14 15 Hours needed to process 3 5

The _____ is estimated as the difference between the expected selling price and the desired profit.

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

Red Co.uses the product cost concept of applying the cost-plus approach to product pricing.Below is cost information for the production and sale of 40,000 units of its sole product.Red Co.desires a profit equal to a 15% rate of return on invested assets of $1,200,000. ? Fixed factory overhead cost \ 80,000.00 Fixed selling and administrative costs 140,000.00 Variable direct materials cost per unit 7.00 Variable direct labor cost per unit 11.00 Variable factory overhead cost per unit 3.00 Variable selling and administrative cost per unit 2.00 ? The dollar amount of desired profit from the production and sale of the company's product is:

Alia Co.can further process Product X to produce Product Y.Product X is currently selling for $20 per pound and costs $15 per pound to produce.Product Y would sell for $30 per pound and would require an additional cost of $8 per pound to produce.What is the differential cost of producing Product Y?

In contrast to the total product and variable cost concepts used in setting selling prices, the target cost approach assumes that:

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

When a product or segment of a business is determined to be generating a loss, the total income from operations for the company will always increase if management eliminates the product or segment.

Blue Lights Co.uses the total cost concept of applying the cost-plus approach to product pricing.The costs of producing and selling 7,700 units are as follows: Fixed factory overhead cost \6 0,000 Fixed selling and administrative costs 120,000 Variable direct materials cost per unit 80 Variable direct labor cost per unit 150 Variable factory overhead cost per unit 50 Variable selling and administrative cost per unit 30 ? If the amount of desired profit is $285,000, calculate the total cost markup percentage per unit.(Round answer to two decimal places)

Hill Co.can further process Product O to produce Product P.Product O is currently selling for $65 per pound and costs $42 per pound to produce.Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce.The differential revenue of producing Product P is $17 per pound.

The markup determined by management should be sufficient to earn:

Yellco Inc., a toy manufacturer, provided the following information: Domestic unit sales price \ 50 Unit manufacturing costs: Variable 10 Fixed 8 ?? The company has received an offer from an exporter for 9,000 units of toys at $60 per unit.The additional business is not expected to affect the normal production or domestic sales prices of Yellco Inc.The company's differential cost from the acceptance of the offer is _____.

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

A business is considering a cash outlay of $880,000 for the purchase of land, which it intends to lease for $200,000 per year.If alternative investments are available that yield a 15% return, the opportunity cost of the purchase of the land is:

A business is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $15 per unit.The unit cost for the business to make the part is $20, including fixed costs, and $12, not including fixed costs.If 30,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?

Jarvis Company uses the total cost concept of applying the cost-plus approach to product pricing.The costs and expenses of producing and selling 35,000 units of Product E are as follows: Variable costs: Direct materials \3 .00 Direct labor 1.25 Factory overhead 0.75 Selling and administrative expenses 3.00 Total Fixed costs: Factory over head \5 0.000 Selling and administrative expenses 20,000 ? Jarvis desires a profit equal to a 14% rate of return on invested assets of $450,000. (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 35,000 units of Product E. (c)Determine the markup percentage for Product E. (d)Determine the selling price of Product E.

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

The condensed income statement for a business for the past year is as follows: ? $\begin{array}{lrr}&\text { Product }\\&A&B\\\text { Sales } & \$ 800,000 & \$ 550,000 \\\text { Less variable costs } & 720,000 & 430,000\\\text { Contribution margin } & \$ 80,000 & \$ 120,000 \\\text { Less fixed costs } & 125,000 & 45,000\\\text { Income (loss) from operations }&\$(45,000)&\$75,000\end{array}$ ? Management is considering the discontinuance of the manufacture and sale of Product A 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 B.What is the amount of change in net income for the current year that will result from the discontinuance of Product A?