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

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Question 91

Multiple Choice

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Using the variable cost concept, determine the selling price per unit for 30,000 units using the following data:​Variable cost per unit $15Total fixed costs $90,000Desired profit $150,000Round to the nearest dollar.

A) $10
B) $15
C) $8
D) $23

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

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Question 92

Multiple Choice

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The condensed income statement of Hayden Corp. for the past year is as follows:​ Management is considering the discontinuance of the manufacture and sale of Product T 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 Product U. What is the amount of change in net income for the current year that will result from the discontinuance of Product T?

A) $140,000 increase
B) $5,000 increase
C) $5,000 decrease
D) $140,000 decrease

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

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Question 93

Multiple Choice

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If the order is accepted, what would be the impact on net income?

A cost that will not be affected by later decisions is termed an opportunity cost.

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

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 markup percentage on the total cost of the company's product is

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

An employee of Morgan Corporation has found some partially completed units of Model X in a dusty corner of the warehouse. A job ticket attached to the units indicates that a total of $750 in manufacturing costs have been used to bring the materials to this point in the manufacturing process. The units can be sold in their current condition for $275 to a scrap metal dealer. If Morgan spends $250 to complete the units, they could be sold for $600.​ (a) What should Morgan do? Why? (b) Identify the sunk cost, if any.

Manufacturers must conform to the Robinson-Patman Act, which prohibits price discrimination within the United States unless differences in prices can be justified by different costs of serving different customers.

What is the differential revenue from the acceptance of the offer?

Differential analysis only considers the short-term (one-year) effects of discontinuing a product.

A bottleneck happens when a key piece of manufacturing machinery can produce 1,000 units per hour and demand for the product supports a production rate of 1,200 units per hour.

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

If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $12.

When estimated costs are used in applying the cost-plus approach to product pricing, the estimates should be based on normal levels of performance.

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.

Sparrow Co. is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $8.00 a unit. The unit cost for Sparrow Co. to make the part is $9.00, which includes $0.60 of fixed costs. If 4,000 units of the part are normally purchased each year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease for making the part rather than purchasing it?