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

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Question 41

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Under the total cost concept, manufacturing cost plus desired profit is included in the total cost per unit.

A) True
B) False

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Question 42

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Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $15 per unit.The unit cost for the business to make the part is $20, including fixed costs, and $11, not including fixed costs.If 30,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?

A) $150,000 cost increase.
B) $120,000 cost decrease
C) $150,000 cost increase
D) $120,000 cost increase

E) A) and B)
F) B) and C)

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Question 43

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Match each of the definitions that follow with the term a-e it defines. -Evaluation of how income will change based on an alternative course of action

Grace Co.can further process Product B to produce Product C.Product B is currently selling for $60 per pound and costs $38 per pound to produce.Product C would sell for $95 per pound and would require an additional cost of $13 per pound to produce.What is the differential revenue of producing and selling Product C?

The differential cost of producing Product P is $13 per pound.

The differential revenue of producing Product P is $82 per pound.

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

MZE Manufacturing Company has a normal plant capacity of 37,500 units per month.Because of an extra-large quantity of inventory on hand, it expects to produce only 30,000 units in May.Monthly fixed costs and expenses are $112,500 $3 per unit at normal plant capacity and variable costs and expenses are $8.25 per unit.The present selling price is $13.50 per unit.The company has an opportunity to sell 7,500 additional units at $9.90 per unit to an exporter who plans to market the product under its own brand name in a foreign market.The additional business is therefore not expected to affect the regular selling price or quantity of sales of MZE Manufacturing Company. Prepare a differential analysis report, dated April 21 of the current year, on the proposal to sell at the special price.

Using the variable cost concept, determine the selling price for 30,000 units using the following data: variable cost p unit, $15.00; total fixed costs, $90,000; and desired profit, $150,000.

Gull Corp.is considering selling its old popcorn machine and replacing it with a newer one.The old machine has a book value of $5,000 and its remaining useful life is 5 years.Annual costs are $4,000.A high school is willing to buy it for $2,000.New equipment would cost $18,000 with annual operating costs of $1,500.The new machine has an estimated useful life of 5 years. Should the machine be replaced?

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

The theory of constraints is a manufacturing strategy that focuses on reducing the influence of bottlenecks on a process.

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

An unfinished desk is produced for $36.00 and sold for $65.00.A finished desk can be sold for $75.00.The additional processing cost to complete the finished desk is $5.95.Provide a differential analysis for further processing.

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

The condensed income statement for a Fletcher Inc.for the past year is as follows: Management is considering the discontinuance of the manufacture and sale of Product G 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 Products F and H.What is the amount of change in net income for the current year that will result from the discontinuance of Product G?

Jarrett Company is considering a cash outlay of $300,000 for the purchase of land, which it could lease out for $36,000 per year.If alternative investments are available that yield a 9% return, the opportunity cost of the purchase of the land is

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.

Match the definitions that follow with the term a-e it defines. -Only includes the costs of manufacturing in product cost per unit

Lark Art Company sells unfinished wooden decorations at a price of $15.00.The current profit margin is $5.00 per decoration.The company is considering taking individual orders and customizing them for customers.To finish the decoration, the company would have to pay additional labor of $3.00 per unit, additional materials costing an average of $4.00 per unit, and fixed costs would increase by $1,500.If the company estimates that it can sell 600 units for $25.00 per unit each month, should it start taking the orders?