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Exam 25: Differential Analysis and Product Pricing

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Question 61

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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 and a special price of $20.00 per unit. Falcon Co. 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, what would be the impact on net income?

A) decrease of $750
B) decrease of $4,500
C) increase of $3,000
D) increase of $1,500

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

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Question 62

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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 activity rate for Production Setup?

A) $2,500 per setup
B) $833 per setup
C) $625 per setup
D) $400 per setup

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

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Question 63

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Rachel Cake Factory normally sells their specialty cake for $22. An offer to buy 100 cakes for $19 per cake was made by an organization hosting a national event in the city. The variable cost per cake is $11. A special decoration per cake will add another $1 to the cost. Determine the differential income or loss per cake from selling the cakes.

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

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 dollar amount of desired profit from the production and 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?

Match each of the following terms with the best definition.

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.

Differential analysis can aid management in making decisions on a variety of alternatives, including whether to discontinue an unprofitable segment and whether to replace usable plant assets.

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 unit selling price for the company's product is:

Which of the following would be considered a sunk cost?

Mallard Corporation uses the product cost concept 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% rate of return on invested assets of $800,000. The markup percentage on product cost for the company's product is:

Hummingbird Company uses the product cost concept 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% rate of return on invested assets of $642,500. Round your markup percentage to one decimal place, and other intermediate calculations and final answer to two decimal places.

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

Holiday Decorations Unique has been approached by the community college to make special decorations for the faculty and staff. The college is willing to buy 5,000 Christmas ornaments with their own design for $6.00 each. The company normally sells its decorations for $12.00 each. A break down of their costs is as follows: Should Holiday Decorations Unique accept the special order made by the college? The company has enough excess capacity to make this order.

Moon Company uses the variable cost concept of applying the cost-plus approach to product pricing. The costs and expenses of producing and selling 75,000 units of Product T are as follows: Moon desires a profit equal to a 18% rate of return on invested assets of $1,440,000. Round your markup percentage to one decimal place and other intermediate calculations and final answer to two decimal places.

Quail Co. can further process Product B to produce Product C Product B is currently selling for $60 per pound and costs $42 per pound to produce. Product C would sell for $92 per pound and would require an additional cost of $13 per pound to produce. What is the differential revenue of producing and selling Product C?

What pricing concept considers the price that other providers charge for the same product?

What cost concept used in applying the cost-plus approach to product pricing covers selling expenses, administrative expenses, and desired profit in the "markup"?

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