Question 1

What is the desired profit per unit?

Accepted Answer

A)  $6 
B)  $8 
C)  $5 
D)  $4

Question 2

Target costing is arrived at by taking the

Accepted Answer

A)  selling price minus desired profit 
B)  selling price and adding desired profit 
C)  selling price and subtracting the budget standard cost 
D)  budget standard cost and reducing it by 10%

Question 3

Use this information for Magpie Corporation to answer the questions that follow.
​
Magpie Corporation uses the total cost concept of product pricing. Below is the 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.
​
​
 $$\begin{array} { l r } 
\text { Fixed factory overhead cost } & \$ 38,700 \
\text { Fixed selling and administrative costs } & 7,500 \
\text { Variable direct materials cost per unit } & 4.60 \
\text { Variable direct labor cost per unit } & 1.88 \
\text { Variable factory overhead cost per unit } & 1.13 \
\text { Variable selling and administrative cost per unit } & 4.50
\end{array}$$
-The unit selling price for the company's product is

Accepted Answer

A)  $15.00 
B)  $13.82 
C)  $15.79 
D)  $14.76

Question 4

Sensational Soft Drinks makes three products: iced tea, soda, and lemonade. The following data are available:? $$\begin{array} { l r r r } 
& \text { Iced Tea } & \text { Soda } & \text { Lemonade } \
\text { Sales price per unit } & \$ 0.90 & \$ 0.60 & \$ 0.50 \
\text { Variable cost per unit } & 0.30 & 0.15 & 0.10 \
\text { Contribution margin per unit } & \underline { \$ 0.60 } & \mathbf { \$ 0 . 4 5 } & \mathbf { \$ 0 . 4 0 }
\end{array}$$  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...

Question 5

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.

Accepted Answer

The answer of Snipe Company has been purchasing a component,...

Question 6

In using the product cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following would be considered a sunk cost?

Accepted Answer

A)  purchase price of new equipment 
B)  equipment rental for the production area 
C)  net book value of equipment that has no market value 
D)  warehouse lease expense

Question 8

When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.

Accepted Answer

A) True 
 B)False

Question 9

The differential cost of producing Product P over Product O is $55 per pound.

Accepted Answer

A) True 
 B)False

Question 10

Match each definition that follows with the term (a-e) it defines.
-Revenue forgone from an alternative use of an asset

Accepted Answer

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

Question 11

Match each definition that follows with the term (a-e) it defines.
-Only includes the costs of manufacturing in product cost per unit

Accepted Answer

A) Demand-based concept 
B) Competition-based concept 
C) Product cost concept 
D) Target costing 
E) Production bottleneck

Question 12

Match each definition that follows with the term (a-e) it defines.
-Sets the price according to competitors

Accepted Answer

A) Demand-based concept 
B) Competition-based concept 
C) Product cost concept 
D) Target costing 
E) Production bottleneck

Question 13

Under the variable cost concept, only variable costs are included in the cost amount per unit to which the markup is added.

Accepted Answer

A) True 
 B)False

Question 14

Match each definition that follows 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 15

The desired selling price for a product will be the same under both variable and total costs.

Accepted Answer

A) True 
 B)False

Question 16

A practical approach that is frequently used by managers when setting normal long-run prices is

Accepted Answer

A)  the cost-plus approach 
B)  the economic theory approach 
C)  the price graph approach 
D)  price skimming

Question 17

Use this information for Mallard Corporation to answer the questions that follow.
​
Mallard Corporation uses the product cost concept of product pricing. Below is the cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000.
​
 $$\begin{array} { l r } 
\text { Fixed factory overhead cost } & \$ 82,000 \
\text { Fixed selling and administrative costs } & 45,000 \
\text { Variable direct materials cost per unit } & 5.50 \
\text { Variable direct labor cost per unit } & 7.65 \
\text { Variable factory overhead cost per unit } & 2.25 \
\text { Variable selling and administrative cost per unit } & 0.90
\end{array}$$
-The unit selling price for the company's product is

Accepted Answer

A)  $19.35 
B)  $15.75 
C)  $22.05 
D)  $21.25

Question 18

Use this information for Magpie Corporation to answer the questions that follow.
​
Magpie Corporation uses the total cost concept of product pricing. Below is the 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.
​
​
 $$\begin{array} { l r } 
\text { Fixed factory overhead cost } & \$ 38,700 \
\text { Fixed selling and administrative costs } & 7,500 \
\text { Variable direct materials cost per unit } & 4.60 \
\text { Variable direct labor cost per unit } & 1.88 \
\text { Variable factory overhead cost per unit } & 1.13 \
\text { Variable selling and administrative cost per unit } & 4.50
\end{array}$$
-Contractors who sell to government agencies would be most likely to use which of the following cost concepts in pricing their products?

Accepted Answer

A)  variable cost concept 
B)  product cost concept 
C)  total cost concept 
D)  fixed cost concept

Question 19

Diamond Boot Factory normally sells its 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.

Accepted Answer

The answer of Diamond Boot Factory normally sells its specialty...

Question 20

What pricing concept considers the price that other providers charge for the same product?

Accepted Answer

A)  demand-based concept 
B)  total cost concept 
C)  cost-plus concept 
D)  competition-based concept

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

What is the desired profit per unit?

Target costing is arrived at by taking the

In using the product cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.

Which of the following would be considered a sunk cost?

When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.

The differential cost of producing Product P over Product O is $55 per pound.

Match each definition that follows with the term (a-e) it defines. -Revenue forgone from an alternative use of an asset

Match each definition that follows with the term (a-e) it defines. -Only includes the costs of manufacturing in product cost per unit

Match each definition that follows with the term (a-e) it defines. -Sets the price according to competitors

Under the variable cost concept, only variable costs are included in the cost amount per unit to which the markup is added.

Match each definition that follows with the term (a-e) it defines. -Target selling price to be achieved in the long term

The desired selling price for a product will be the same under both variable and total costs.

A practical approach that is frequently used by managers when setting normal long-run prices is

What pricing concept considers the price that other providers charge for the same product?