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Exam 25: Differential Analysis and Product Pricing

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Question 81

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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 cost per unit for the production and sale of Magpie's product is

A) $12.11
B) $12.88
C) $15.00
D) $13.50

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

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Question 82

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All of the following should be considered in a make-or-buy decision except

A) cost savings
B) quality issues with the supplier
C) future growth in the plant and other production opportunities
D) whether the supplier will make a profit that would no longer belong to the business

E) None of the above
F) A) and B)

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Question 83

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Starling Co. is considering disposing of a machine with a book value of $12,500 and estimated remaining life of five years. The old machine can be sold for $1,500. A new high-speed machine can be purchased at a cost of $25,000. It will have a useful life of five years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $26,000 to $23,500 if the new machine is purchased. The five-year differential effect on profit from replacing the machine is a(n)

Which of the following methods of applying the cost-plus approach to product pricing includes selling expenses, administrative expenses, and desired profit in the markup?

Mallard Corporation uses the product cost method of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% return on invested assets of $800,000. ​ -The unit selling price for the company's product is

Hummingbird Company uses the product cost method of applying the cost-plus approach to product pricing. The costs and expenses of producing 25,000 units of Product K are as follows: Hummingbird desires a profit equal to a 5% return on invested assets of $642,500.​ a.Determine the amount of desired profit from the production and sale of Product K. b.Determine the total manufacturing costs and the cost amount per unit for the production of 25,000 units of Product K. c.Determine the markup percentage for Product K. d.Determine the selling price of Product K.​ Round the markup percentage to one decimal place and other intermediate computations and final answer to two decimal places.

Falcon Co. produces a single product. Its normal selling price is $30.00 per unit. The variable costs are $19.00 per unit. Fixed costs are $25,000 for a normal production run of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,500 units with a special price of $20.00 per unit. Falcon has the capacity to handle the special order, and for this order, a variable selling cost of $1.00 per unit would be eliminated. If the order is accepted, the differential effect on profit would be a(n)

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.

Snipe Company has been purchasing a component, Part Q, for $19.20 per unit. Snipe is currently operating at 70% of capacity, and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part Q is estimated as follows: Should the company make or buy the component? Prepare a differential analysis report dated March 12 of the current year to support your answer.

Dotterel Corporation uses the variable cost method 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 an 11.2% return on invested assets of $350,000. ​ -The markup percentage for the sale of Dotterel's product is

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.​ ​ -Contractors who sell to government agencies would be most likely to use which of the following cost methods in pricing their products?

Discontinuing a segment or product may not be the best choice when the segment is contributing to fixed expenses.

Jay Company uses the total cost method of applying the cost-plus approach to product pricing. The costs and expenses of producing and selling 38,400 units of Product E are as follows: Jay desires a profit equal to a 14% return on invested assets of $640,000. a.Determine the amount of desired profit from the production and sale of Product E. b.Determine the total costs and the cost amount per unit for the production and sale of 38,400 units of Product E. c.Determine the markup percentage for Product E. d.Determine the selling price of Product E.Round the markup percentage to one decimal place and other intermediate computations and final answer to two decimal places.

Diamond Boot Factory normally sells its specialty boots for $375 a pair. An offer to buy 100 boots for $275 per pair was made by an organization hosting a national event in Norfolk. The variable cost per boot is $250, and special stitching will add another $20 per pair to the cost. Determine the differential income or loss per pair of boots from selling to the organization. Should Diamond Boot Factory accept or reject the special offer? Show computations, but a formal differential analysis report is not required.

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.

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.​ -Peyton Company manufactures Phone X and Phone Y. Peyton can sell all it can make of either phone. Based on the following data and assuming the number of hours is a constraint, which of the following statements is true?

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.​ -Which of the following equations best describes target costing?