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Exam 25: Differential Analysis and Product Pricing

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Question 31

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The amount of increase or decrease in cost that is expected from a particular course of action as compared with an alternative is

A) period cost
B) product cost
C) differential cost
D) discretionary cost

E) B) and D)
F) All of the above

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Question 32

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Flyer Company sells a product in a competitive marketplace. Market analysis indicates that its product would probably sell at $48 per unit. Flyer management desires a 12.5% profit margin on sales. Flyer's current full cost for the product is $44 per unit.​ -The target cost is determined by taking

A) the expected selling price and subtracting the desired profit
B) the expected selling price and adding desired profit
C) the expected selling price and subtracting the budgeted standard cost
D) the budgeted standard cost and reducing it by 10%

E) All of the above
F) A) and D)

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Question 33

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Rylan Corporation received an offer from an exporter for 25,000 units of product at $16 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: ​ -The differential cost from the acceptance of the offer is

Assume that Widgeon Co. produced enough product with the highest contribution margin per unit to use 1,000 hours of machine time. Product demand does not warrant any more production of that product. The maximum additional contribution margin that can be realized by utilizing the remaining 1,000 hours on the product with the second highest contribution margin per hour is

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

Which of the following would be considered a sunk cost?

Jacoby Company received an offer from an exporter for 30,000 units of product at $15 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: The differential revenue from the acceptance of the offer is

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

Match each phrase that follows with the term (a-e) it describes. -Possible result of using an inappropriate overhead allocation method A)Opportunity cost B)Sunk cost C)Theory of constraints D)Differential analysis E)Product cost distortion

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

Rylan Corporation received an offer from an exporter for 25,000 units of product at $16 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: ​ -The amount of the profit or loss from acceptance of the offer is a

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, the amount of differential cost increase or decrease from making the part rather than purchasing it would be a

Magpie Corporation uses the total cost method 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% return on invested assets of $700,000.​ ​ -The unit selling price for Magpie's product is

Differential revenue is the amount of profit that would result from the best available alternative proposed use of cash.

The product cost method includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.

The revenue that is forgone from an alternative use of an asset, such as cash, is called opportunity cost.

Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.

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

Magpie Corporation uses the total cost method 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% return on invested assets of $700,000.​ ​ -The dollar amount of desired profit from the production and sale of Magpie's product is

Match each word or phrase that follows with the term (a-e) it describes. -Sets the price based on the price offered by competitors A)Demand-based method B)Competition-based method C)Product cost method D)Target costing method E)Production bottleneck