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

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

Product J is one of the many products manufactured and sold by Oceanside Company.An income statement by product line for the past year indicated a net loss for Product J of $12,250.This net loss resulted from sales of $275,000, cost of goods sold of $186,500, and operating expenses of $85,750.It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 40% of the operating expense is fixed.If Product J is retained, the revenue, costs, and expenses are not expected to change significantly from those of the current year.Because of the large number of products manufactured, the total fixed costs and expenses are not expected to decline significantly if Product J is discontinued.

Jamison Company produces and sells Product X at a total cost of $25 per unit, of which $15 is product cost and $10 is selling and administrative expenses.In addition, the total cost of $25 is made up of $14 variable cost and $11 fixed cost.The desired profit is $5 per unit.Determine the markup percentage on total cost.

What is the total overhead allocated to Product A using activity-based costing?

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?

What is the desired profit per unit?

A cost that will not be affected by later decisions is termed a sunk cost.

Snipe Company has been purchasing a component, Part Q for $19.20 per unit.Snipe is currently operating at 70% of capacity and no significant increase in production is anticipated in the near future.The cost of manufacturing a unit of Part Q is estimated as follows: Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Q.

Hummingbird Company uses the product cost concept of applying the cost-plus approach to product pricing.The costs and expenses of producing 25,000 units of Product K are as follows: Hummingbird desires a profit equal to a 5% rate of return on invested assets of $642,500. a Determine the amount of desired profit from the production and sale of Product K. b Determine the total manufacturing costs and the cost amount per unit for the production of 25,000 units of Product K. c Determine the markup percentage for Product K. d Determine the selling price of Product K.

Heston and Burton, CPA's, currently work a five-day week.They estimate that net income for the firm would increase by $75,000 annually if they worked an additional day each month.The cost associated with the decision to continue the practice of a five-day work week is an example of an

Which of the following would be considered a sunk cost?

The cost per unit for the production of the company's product is

Match each of the definitions that follow with the term a-e it defines. -Possible result of using an inappropriate overhead allocation method

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

The cost per unit for the production and sale of the company's product is

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 $48.

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: 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.

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

Crane Company Division B recorded sales of $360,000, variable cost of goods sold of $315,000, variable selling expenses of $13,000, and fixed costs of $61,000; creating a loss from operations of $29,000.Determine the differential income or loss from the sales of Division B.Should this division be discontinued?

The dollar amount of desired profit from the production and sale of the company's product is