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Exam 13: Differential Analysis: the Key to Decision Making

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Question 71

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Stinehelfer Beet Processors, Incorporated, processes sugar beets in batches. A batch of sugar beets costs $56 to buy from farmers and $13 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $24 or processed further for $12 to make the end product industrial fiber that is sold for $31. The beet juice can be sold as is for $43 or processed further for $29 to make the end product refined sugar that is sold for $91. What is the financial advantage (disadvantage) for the company from processing the intermediate product beet juice into refined sugar rather than selling it as is?

A) $19
B) $6
C) ($50)
D) ($16)

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

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Question 72

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Under the absorption approach to cost-plus pricing described in the text, all fixed costs are included in the cost base in setting a selling price.

A) True
B) False

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Question 73

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Mae Refiners, Incorporated, processes sugar cane that it purchases from farmers. Sugar cane is processed in batches. A batch of sugar cane costs $60 to buy from farmers and $13 to crush in the company's plant. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $29 or processed further for $13 to make the end product industrial fiber that is sold for $61. The cane juice can be sold as is for $40 or processed further for $28 to make the end product molasses that is sold for $67.What is the financial advantage (disadvantage) for the company from processing the intermediate product cane juice into molasses rather than selling it as is?

Dock Corporation makes two products from a common input. Joint processing costs up to the split-off point total $33,600 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?

Diedrich Corporation makes a product with the following costs: The company uses the absorption costing approach to cost-plus pricing described in the text. The pricing calculations are based on budgeted production and sales of 68,000 units per year.The company has invested $380,000 in this product and expects a return on investment of 18%.Direct labor is a variable cost in this company.The markup on absorption cost is closest to: (Round your intermediate calculations to 2 decimal places and final answer to 1 decimal place.)

Whittenton Corporation manufactures numerous products, one of which is called Tau14. The company has provided the following data about this product: What is the net operating income for product Tau14 at the current price?

Bochenski Mechanical Corporation has developed a new industrial grinder-model UF-48-that has been designed to outperform a competitor's best-selling industrial grinder. Model UF-48 has a useful life of 80,000 hours of service and its operating cost is $1.00 per hour. In contrast, the competitor's product has a useful life of 20,000 hours of service and has operating costs that average $1.80 per hour. The competitor's industrial grinder sells for $129,000. Bochenski has not yet established a selling price for model UF-48.Required:From a value-based pricing standpoint what is the differentiation value offered by model UF-48 relative to the competitor's offering for each 80,000 hours of service?

Schimpf Industries Incorporated has developed a new grinder, model WC-13, that is designed to offer superior performance to a comparable grinder sold by Schimpf's main competitor. The competing grinder sells for $24,000 and needs to be replaced after 1,000 hours of use. It also requires $2,000 of preventive maintenance during its useful life. Model WC-13's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 4,000 hours of use and it requires $5,000 of preventive maintenance during its useful life.From a value-based pricing standpoint what range of possible prices should Schimpf consider when setting a price for model WC-13?

Otool Incorporated is considering using stocks of an old raw material in a special project. The special project would require all 190 kilograms of the raw material that are in stock and that originally cost the company $2,456 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $7 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $6.10 per kilogram if it were not used in the special project. The sale of the raw material would involve delivery to the purchaser at a total cost of $63 for all 190 kilograms. What is the relevant cost of the 190 kilograms of the raw material when deciding whether to proceed with the special project?

Mercer Corporation estimates that an investment of $650,000 would be necessary to produce and sell 60,000 units of a new product each year. Other costs associated with the new product would be: The company requires a 25% return on the investment in all products. The company uses the absorption costing approach costing to pricing as described in the text.The selling price would be closest to:

McGraw Company uses 5,000 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $100,000, computed as follows: An outside supplier has offered to provide Part X at a price of $18 per unit. If McGraw Company stops producing the part internally, one-third of the fixed manufacturing overhead would be eliminated. Assume that direct labor is a variable cost.Required:Prepare an analysis showing the annual financial advantage or disadvantage of accepting the outside supplier's offer.

Alway Candy Corporation is implementing a target costing approach for its latest new product, the "Big Glob" candy bar. The following information relates to the Big Glob: Based on this information, what is Alway's target selling price per bar for the Big Glob?

Diedrich Corporation makes a product with the following costs: The company uses the absorption costing approach to cost-plus pricing described in the text. The pricing calculations are based on budgeted production and sales of 67,000 units per year.The company has invested $420,000 in this product and expects a return on investment of 12%.Direct labor is a variable cost in this company.The markup on absorption cost is closest to:

Ouzts Corporation is considering Alternative A and Alternative B. Costs associated with the alternatives are listed below: Are the materials costs and processing costs relevant in the choice between alternatives A and B?

In value-based pricing, the economic value to the customer equals the reference value less the differentiation value.

Two or more products that are produced from a common input are known as joint products.

Sharp Corporation produces 8,000 parts each year, which are used in the production of one of its products. The unit product cost of a part is $36, computed as follows: The parts can be purchased from an outside supplier for only $28 each. The space in which the parts are now produced would be idle and fixed production costs would be reduced by one-fourth. Based on these data, the financial advantage (disadvantage) of purchasing the parts from the outside supplier would be:

Garson, Incorporated produces three products. Data concerning the selling prices and unit costs of the three products appear below: Fixed costs are applied to the products on the basis of direct labor hours.Demand for the three products exceeds the company's productive capacity. The milling machine is the constraint, with only 2,800 minutes of milling machine time available this week.Required:a. Given the milling machine constraint, which product should be emphasized?b. Assuming that there is still unfilled demand for the product that the company should emphasize in part (a) above, up to how much should the company be willing to pay for an additional hour of milling machine time?

Perwin Corporation estimates that an investment of $660,000 would be needed to produce and sell 44,000 units of Product B each year. At this level of activity, the unit product cost would be $30. Selling and administrative expenses would total $669,900 each year. The company uses the absorption costing approach to cost-plus pricing described in the text. If a 15% rate of return on investment is desired, then the required markup for Product B would be closest to: (Do not round intermediate calculations.)

Hanisch Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $22 per unit, management projects sales of 50,000 units. The new product would require an investment of $400,000. The desired return on investment is 14%. The target cost per unit is closest to: