Exam 12: Differential Analysis and Product Pricing

The condensed income statement for a business for the past year is presented as follows: ? $\begin{array}{lccc}&\text { Product }\\&\mathrm{F}&\mathrm{G}& \mathrm{H}&\text{Total}\\ \text { Sales } & \$ 300,000 & \$ 220,000 & \$ 340,000&\$860,000 \\ \text { Less variable costs } & 180,000 & 190,000 & 220,000&590,000 \\ \text { Contributi on margin } & \$ 120,000 & \$ 30,000 & \$ 120,000 &\$270,000\\ \text { Less fixed costs } & 50,000 & 50,000 & 40,000&140,000 \\\text { Income (loss) from operations } & \$ 70,000 & \$(20,000) & \$ 80,000&\$130,000 \\\end{array}$ ? 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?

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.What is the amount of gain or loss from acceptance of the offer?

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

Managers who often make special pricing decisions are more likely to use which of the following cost concepts in their work?

_____ is a method of setting prices that combines market-based pricing with a cost-reduction emphasis.

Blue Lights Co.uses the total cost concept of applying the cost-plus approach to product pricing.The costs of producing and selling 5,000 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 total cost markup percentage per unit is 5.5%, determine the selling price per unit of the company's product.

FDE Manufacturing Company has a normal plant capacity of 75,000 units per month.Because of an extra large quantity of inventory on hand, it expects to produce only 60,000 units in May.Monthly fixed costs and expenses are $150,000 ($2 per unit at normal plant capacity), and variable costs and expenses are $13 per unit.The present selling price is $25 per unit.The company has an opportunity to sell 5,000 additional units at $14.30 per unit to an exporter who plans to market the product under its own brand name in a foreign market.The additional business is therefore not expected to affect the regular selling price or quantity of sales of FDE Manufacturing Company. ​ Prepare a differential analysis report, dated April 21 of the current year, on the proposal to sell at the special price.

The revenue that is forgone from an alternative use of an asset is called a(n):

Topaz Company is considering replacing an old machine that originally cost $95,000.A new machine will cost $900,000, and the old machine can be sold for $25,000.What is the sunk cost in this situation?

Green Co.incursa cost of $15 per pound to produce Product X, which it sells for $26 per pound.The company can further process Product X to produce Product Y.Product Y would sell for $30 per pound and would require an additional cost of $10 per pound to be produced.The differential cost of producing Product Y is _____.

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 $48.

Grey Inc.has been purchasing a component, Z for $85 a unit.The company is currently operating at 75% of full capacity, and no significant increase in production is anticipated in the near future.The cost of manufacturing a unit of Z, determined by absorption costing method, is estimated as follows: ​ Direct materials \ 30 Direct labor 15 Variable factory overhead 26 Fixed factory overhead 10 Total \8 1 ​ Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Z.

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 revenue from the acceptance of the offer is _____.

The condensed income statement for a business for the past year is as follows: ? Product White Black Sales \ 750,000 \ 550,000 Less variable costs Contribution margin \ 350,000 \ 170,000 Less fixed costs Income (loss) from operations ? Management is considering the discontinuance of the manufacture and sale of Black 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 White.What is the amount of change in net income for the current year that will result from the discontinuance of Black?

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:

Kirk Co.manufactures mobile cellular equipment and develops a price for the product by using a variable cost concept.Kirk incurs variable costs of $1,900,000 in the production of 100,000 units.Fixed costs total $50,000.The company employs $4,725,000 of assets and wishes to earn a profit equal to a 10% rate of return on assets. (a)Compute a markup percentage based on the variable costs concept. (b)Determine a selling price.

In deciding whether to accept business at a special price when the company is operating below full capacity, the special price should be set high enough to cover both the fixed and variable costs.

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 ? What is the markup percentage for the company's product? (Round the answer to two decimal places.)

Opportunity cost is the amount of increase or decrease in revenue that would result from the best available alternative to the proposed use of cash or its equivalent.

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 cost of producing Product P is $55 per pound.