Exam 9: Differential Analysis, Product Pricing, and Activity-Based Costing

Nighthawk Inc.is considering disposing of a machine with a book value of $22,500 and an estimated remaining life of three years.The old machine can be sold for $6,250.A new machine with a purchase price of $68,750 is being considered as a replacement.It will have a useful life of three years and no residual value.It is estimated that the annual variable manufacturing costs will be reduced from $43,750 to $20,000 if the new machine is purchased.The net differential increase or decrease in cost for the entire three years for the new equipment is

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.

Which equation better describes target costing?

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

Starling Co.is considering disposing of a machine with a book value of $12,500 and estimated remaining life of five years.The old machine can be sold for $1,500.A new high-speed machine can be purchased at a cost of $25,000.It will have a useful life of five years and no residual value.It is estimated that the annual variable manufacturing costs will be reduced from $26,000 to $23,500 if the new machine is purchased.The total net differential increase or decrease in cost for the new equipment for the entire five years is

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

What is the activity rate for general overhead?

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

The condensed income statement for a Hayden Corp.for the past year is as follows: Management is considering the discontinuance of the manufacture and sale of Product T 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 U.What is the amount of change in net income for the current year that will result from the discontinuance of Product T?

The Turtle Company has total estimated factory overhead for the year of $1,200,000, divided into four activities: fabrication, $600,000; assembly, $240,000; setup, $200,000; and materials handling, $160,000.Turtle manufactures two products, Boogie Boards and Surf Boards.The activity-base usage quantities for each product by each activity are as follows: Each product is budgeted for 10,000 units of production for the year.Determine a the activity rates for each activity and b the factory overhead cost per unit for each product using activity-based costing.

In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and both fixed and variable selling and administrative expenses must be covered by the markup.

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?

The markup percentage on product cost for the company's product is

Diamond Boot Factory normally sells their specialty boots for $375 a pair.An offer to buy 100 boots for $275 per pair was made by an organization hosting a national event in Norfolk.The variable cost per boot is $250 and special stitching will add another $20 per pair to the cost.Determine the differential income or loss per pair of boots from selling to the organization.

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.

A commercial oven with a book value of $67,000 has an estimated remaining 5 year life.A proposal is offered to sell the oven for $8,500 and replace it with a new oven costing $110,000.The new machine has a 5-year life with no residual value.The new machine would reduce annual maintenance costs by $23,000.Provide a differential analysis on the proposal to replace the commercial oven.

Manufacturers must conform to the Robinson-Patman Act, which prohibits price discrimination within the United States unless differences in prices can be justified by different costs of serving different customers.

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

If the order is accepted, what would be the impact on net income?

In deciding whether to accept business at a special price, the short-run price should be set high enough to cover all variable costs and expenses.