Question 1

Olsen Company produces two products. Product A has a contribution margin of $30 and requires 10 machine hours. Product B has a contribution margin of $24 and requires 4 machine hours. Determine the most profitable product assuming the machine hours are the constraint.

Accepted Answer

The answer of Olsen Company produces two products. Product A...

Question 2

Magpie Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000. $$\begin{array} { l l } 
\text { Fixed factory overhead cost } & \$ 38,700 \
\text { Fixed selling and administrative costs } & 7,500 \
\text { Variable direct materials cost per unit } & 4.60 \
\text { Variable direct labor cost per unit } & 1.88 \
\text { Variable factory overhead cost per unit } & 1.13 \
\text { Variable selling and administrative cost per unit } & 4.50
\end{array}$$
-The markup percentage on total cost for the company's product is

Accepted Answer

A)  21.0% 
B)  22.7% 
C)  15.8% 
D)  24.0%

Question 3

Lara Technologies is considering a cash outlay of $250,000 for the purchase of land, which it could lease out for $35,000 per year. If alternative investments are available that yield a 12% return, the opportunity cost of the purchase of the land is

Accepted Answer

A)  $35,000 
B)  $30,000 
C)  $250,000 
D)  $4,200

Question 4

The lowest contribution margin per scarce resource is the most profitable.

Accepted Answer

A) True 
 B)False

Question 5

What is the differential revenue of producing Product D?

Accepted Answer

A)  $6.75 per pound 
B)  $22.25 per pound 
C)  $18.00 per pound 
D)  $6.25 per pound

Question 6

Differential revenue is the amount of income that would result from the best available alternative proposed use of cash.

Accepted Answer

A) True 
 B)False

Question 7

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: $$\begin{array} { | l | l | c | } 
\hline \text { Activity } & \text { Cost } & \text { Activity Base } \
\hline \text { Production setup } & \$ 250,000 & \text { Number of setups } \
\hline \text { Material handling } & 150,000 & \text { Number of parts } \
\hline \text { General overhead } & 80,000 & \text { Number of direct labor hours } \
\hline
\end{array}$$ Each product's total activity in each of the three areas are as follows: $$\begin{array} { | l | l | l | } 
\hline & \text { Product A } & \text { Product B } \
\hline \text { Number of setups } & 100 & 300 \
\hline \text { Number of parts } & 40,000 & 20,000 \
\hline \text { Number of direct labor hours } & 8,000 & 12,000 \
\hline
\end{array}$$
-What is the overhead allocated to Product B using activity-based costing?

Accepted Answer

A)  $135,000 
B)  $175,000 
C)  $292,500 
D)  $285,500

Question 8

What is the amount of income or loss from acceptance of the offer?

Accepted Answer

A)  $97,500 income 
B)  $94,500 loss 
C)  $37,500 income 
D)  $37,500 loss

Question 9

What is the differential cost of producing Product D?

Accepted Answer

A)  $6.50 per pound 
B)  $8.55 per pound 
C)  $17.00 per pound 
D)  $5.25 per pound

Question 10

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

Accepted Answer

A) Opportunity cost 
B) Sunk cost 
C) Theory of constraints 
D) Differential analysis 
E) Product cost distortion

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  $8,750 increase 
B)  $31,250 decrease 
C)  $8,750 decrease 
D)  $2,925 decrease

Question 13

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

Accepted Answer

A)  period cost 
B)  differential cost 
C)  sunk cost 
D)  replacement cost

Question 14

Magpie Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000. $$\begin{array} { l l } 
\text { Fixed factory overhead cost } & \$ 38,700 \
\text { Fixed selling and administrative costs } & 7,500 \
\text { Variable direct materials cost per unit } & 4.60 \
\text { Variable direct labor cost per unit } & 1.88 \
\text { Variable factory overhead cost per unit } & 1.13 \
\text { Variable selling and administrative cost per unit } & 4.50
\end{array}$$
-The unit selling price for the company's product is

Accepted Answer

A)  $15.00 
B)  $13.82 
C)  $15.80 
D)  $14.76

Question 15

Match each of the definitions that follow with the term a-e) it defines.
-Target selling price to be achieved in the long term

Accepted Answer

A) Engineering change order 
B) Total cost concept 
C) Variable cost concept 
D) Normal selling price 
E) Setup

Question 16

The differential revenue of producing Product P is $22 per pound.

Accepted Answer

A) True 
 B)False

Question 17

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: $$\begin{array} { | l | l | c | } 
\hline \text { Activity } & \text { Cost } & \text { Activity Base } \
\hline \text { Production setup } & \$ 250,000 & \text { Number of setups } \
\hline \text { Material handling } & 150,000 & \text { Number of parts } \
\hline \text { General overhead } & 80,000 & \text { Number of direct labor hours } \
\hline
\end{array}$$ Each product's total activity in each of the three areas are as follows: $$\begin{array} { | l | l | l | } 
\hline & \text { Product A } & \text { Product B } \
\hline \text { Number of setups } & 100 & 300 \
\hline \text { Number of parts } & 40,000 & 20,000 \
\hline \text { Number of direct labor hours } & 8,000 & 12,000 \
\hline
\end{array}$$
-What is the total overhead allocated to Product A using activity-based costing?

Accepted Answer

A)  $194,500 
B)  $162,500 
C)  $32,000 
D)  $224,000

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

Airflow Company sells a product in a competitive marketplace. Market analysis indicates that the product would probably sell at $28.00 per unit. Airflow management desires a profit equal to a 20% rate of return on invested assets of $1,400,000. Airflow anticipates selling 50,000 units. The current full cost per unit for the product is $25 per unit.
a) What is the amount of profit per unit?
b) What is the target cost per unit if Airflow meets the market dictated price and management's desired profit?

Accepted Answer

The answer of Airflow Company sells a product in a...

Question 20

Sensational Soft Drinks makes three products: iced tea, soda, and lemonade. The following data are available:  Sensational is experiencing a bottleneck in one of its processes that affects each product as follows:  a) Using a theory of constraints TOC) approach, rank the products in terms of profitability.
b) What price for lemonade would equate its profitability contribution margin per bottleneck hour) to that of soda?

Accepted Answer

The answer of Sensational Soft Drinks makes three products: iced...

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

Olsen Company produces two products. Product A has a contribution margin of $30 and requires 10 machine hours. Product B has a contribution margin of $24 and requires 4 machine hours. Determine the most profitable product assuming the machine hours are the constraint.

Lara Technologies is considering a cash outlay of $250,000 for the purchase of land, which it could lease out for $35,000 per year. If alternative investments are available that yield a 12% return, the opportunity cost of the purchase of the land is

The lowest contribution margin per scarce resource is the most profitable.

What is the differential revenue of producing Product D?

Differential revenue is the amount of income that would result from the best available alternative proposed use of cash.

What is the amount of income or loss from acceptance of the offer?

What is the differential cost of producing Product D?

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

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.

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

Match each of the definitions that follow with the term a-e) it defines. -Target selling price to be achieved in the long term

The differential revenue of producing Product P is $22 per pound.

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.