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Exam 24: Differential Analysis and Product Pricing

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Question 1

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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 activity-based costing to allocate overhead to products. An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities: Each product's total activity in each of the three areas are as follows: What is the total overhead allocated to Product A using activity-based costing?

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

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

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Question 2

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The amount of income that would result from an alternative use of cash is called opportunity cost.

A) True
B) False

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Question 3

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The Swan Company produces their product at a total cost of $43 per unit. Of this amount $8 per unit is selling and administrative costs. The total variable cost is $30 per unit The desired profit is $20 per unit. Determine the mark up percentage on variable cost.

Dotterel Corporation uses the variable cost concept of product pricing. Below is cost information for the production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to a 11.2% rate of return on invested assets of $350,000. The markup percentage for the sale of the company's product is:

Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling prices are: $55; $78; and $32, respectively. The variable costs for each product are: $20; $50; and $15, respectively. Each product must go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to process, Tales take 7 hours, and Wales take 1 hour. What is the contribution margin per machine hour for Bales?

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 and annual operating costs would be $1,500. The new machine has an estimated useful life of 5 years. Should the machine be replaced? Support your answer with calculations.

Falcon Inc. manufactures Product B, incurring variable costs of $15.00 per unit and fixed costs of $70,000. Falcon desires a profit equal to a 12% rate of return on assets, $785,000 of assets are devoted to producing Product B, and 100,000 units are expected to be produced and sold. Round your intermediate calculations and final answer to two decimal places.

The product cost concept includes all manufacturing costs in the cost amount to which the markup is added to determine product price.

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

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. The markup percentage on total cost for the company's product is:

Which equation better describes Target Costing?

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

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.

In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and both fixed and variable selling and administrative expenses must be covered by the markup.

Target costing is arrived at by

Dotterel Corporation uses the variable cost concept of product pricing. Below is cost information for the production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to a 11.2% rate of return on invested assets of $350,000. The dollar amount of desired profit from the production and sale of the company's product is:

The condensed income statement for a business for the past year is presented 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?

Airflow Company sells a product in a competitive marketplace. Market analysis indicates that their 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. They anticipate selling 50,000 units. Their current full cost per unit for the product is $25 per unit. (1) What is the amount of profit per unit? (2) What is the target cost per unit if they meet the market dictated price and management's desired profit?

Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling prices are: $55; $78; and $32, respectively. The variable costs for each product are: $20; $50; and $15, respectively. Each product must go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to process, Tales take 7 hours, and Wales take 1 hour. Which product has the highest contribution margin per machine hour?

Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 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 revenue of producing Product P is $22 per pound.