Question 1

Based on the above data,what is the differential revenue from the acceptance of the offer?

Accepted Answer

A) $45,000 
B) $40,000 
C) $50,000 
D) $60,000

Question 2

In using the total cost concept of applying the cost-plus approach to product pricing,only profit is covered in the markup.

Accepted Answer

A) True 
 B)False

Question 3

A practical approach that is frequently used by managers when setting normal selling price is the:

Accepted Answer

A) cost-plus approach. 
B) economic theory approach. 
C) price graph approach. 
D) market price approach.

Question 4

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

Accepted Answer

A) Total cost 
B) Product cost 
C) Variable cost 
D) Fixed cost

Question 5

A business is considering a cash outlay of $250,000 for the purchase of land,which it intends to lease for $40,000 per year.If alternative investments are available that yield an 15% return,the opportunity cost of the purchase of the land is

Accepted Answer

A) $45,000. 
B) $37,800. 
C) $47,200. 
D) $37,500.

Question 6

The condensed income statement for a business for the past year is as follows:

Accepted Answer

A) $80,000 increase 
B) $45,000 increase 
C) $45,000 decrease 
D) $80,000 decrease

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

When choosing whether or not to replace an equipment,the analysis normally focuses on the costs of continuing to use the old equipment versus replacing the equipment.

Accepted Answer

A) True 
 B)False

Question 9

Pearl Company is considering replacing equipment that originally costs $75,000.A new machine will cost $800,000 and the old equipment can be sold for $15,000.What is the sunk cost in this situation?

Accepted Answer

A) $15,000 
B) $75,000 
C) $800,000 
D) $60,000

Question 10

The condensed income statement for a business for the past year is as follows:

Accepted Answer

A) $40,000 decrease 
B) $180,000 decrease 
C) $70,000 decrease 
D) $170,000 decrease

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Paul's Delivery Service is considering selling one of its smaller trucks that is no longer needed in the business.The truck originally costed $23,000 and has accumulated depreciation of $10,000.The truck can be sold for $14,000.Another company is interested in leasing the truck.It will pay $4,800 per year for three years.Paul's Delivery Service will continue to pay the taxes and license fees for the truck,but all other expenses will be paid by the lessee.Management assumes the expenses for the taxes and license will be $300 per year.Which of the following statements is correct?

Accepted Answer

A) Paul's Delivery Service should sell the truck because the differential loss from leasing is $500. 
B) Paul's Delivery Service should lease the truck because the differential income from leasing is $12,200. 
C) Paul's Delivery Service should lease the truck because the differential income from leasing is $300. 
D) Paul's Delivery Service is indifferent as to whether the company should lease or sell the truck because there is no differential income or loss between the alternatives.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Assume that Vivid Co.is considering disposing of equipment that cost $350,000 and has $280,000 of accumulated depreciation to date.Vivid Co.can sell the equipment through a broker for $135,000 less 5% commission.Alternatively,Comet Co.has offered to lease the equipment for five years for a total of $235,000.Vivid will incur repair,insurance,and property tax expenses estimated at $60,000.At lease-end,the equipment is expected to have no residual value.The net differential income from the lease alternative is:

Accepted Answer

A) $135,000. 
B) $235,000. 
C) $100,000. 
D) $46,750.

Question 15

Based on the above data,what is the differential cost from the acceptance of the offer?

Accepted Answer

A) $10,000 
B) $40,000 
C) $5,000 
D) $45,000

Question 16

A business is considering a cash outlay of $200,000 for the purchase of land,which it could lease for $35,000 per year.If alternative investments are available that yield an 18% return,the opportunity cost of the purchase of the land is:

Accepted Answer

A) $35,000. 
B) $36,000. 
C) $1,000. 
D) $37,000.

Question 17

Based on the above data,what is the amount of gain or loss from acceptance of the offer?

Accepted Answer

A) $5,000 gain 
B) $10,000 loss 
C) $5,000 loss 
D) $10,000 gain

Question 18

What cost concept used in applying the cost-plus approach to product pricing includes total manufacturing costs and total selling and administrative expenses in the "cost" amount to which the markup is added?

Accepted Answer

A) Variable cost concept 
B) Total cost concept 
C) Product cost concept 
D) Opportunity cost concept

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

The answer of Kirk Co.manufactures mobile cellular equipment and develops...

Exam 12: Differential Analysis and Product Pricing

Based on the above data,what is the differential revenue from the acceptance of the offer?

In using the total cost concept of applying the cost-plus approach to product pricing,only profit is covered in the markup.

A practical approach that is frequently used by managers when setting normal selling price is the:

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

A business is considering a cash outlay of $250,000 for the purchase of land,which it intends to lease for $40,000 per year.If alternative investments are available that yield an 15% return,the opportunity cost of the purchase of the land is

The condensed income statement for a business for the past year is as follows:

When choosing whether or not to replace an equipment,the analysis normally focuses on the costs of continuing to use the old equipment versus replacing the equipment.

Pearl Company is considering replacing equipment that originally costs $75,000.A new machine will cost $800,000 and the old equipment can be sold for $15,000.What is the sunk cost in this situation?

The condensed income statement for a business for the past year is as follows:

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

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

Based on the above data,what is the differential cost from the acceptance of the offer?

A business is considering a cash outlay of $200,000 for the purchase of land,which it could lease for $35,000 per year.If alternative investments are available that yield an 18% return,the opportunity cost of the purchase of the land is:

Based on the above data,what is the amount of gain or loss from acceptance of the offer?

What cost concept used in applying the cost-plus approach to product pricing includes total manufacturing costs and total selling and administrative expenses in the "cost" amount to which the markup is added?

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.