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# Chapter 25--Differential Analysis and Product Pricing

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Chapter 25--Differential Analysis and Product Pricing

*Student: ___________________________________________________________________________*

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

True False

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

True False

3. 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 $48.

True False

4. 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.

True False

5. 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 $82 per pound.

True False

6. 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.

True False

7. 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 cost of producing Product P is $13 per pound.

True False

8. 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 cost of producing Product P is $55 per pound.

True False

9. Opportunity cost is the amount of increase or decrease in cost that would result from the best available alternative to the proposed use of cash or its equivalent.

True False

10. 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.

True False

11. A cost that will not be affected by later decisions is termed a sunk cost.

True False

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

True False

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

True False

14. Since the costs of producing an intermediate product do not change regardless of whether the intermediate product is sold or processed further, these costs are not considered in deciding whether to further process a product.

True False

15. The costs of initially producing an intermediate product should be considered in deciding whether to further process a product, even though the costs will not change, regardless of the decision.

True False

16. In deciding whether to accept business at a special price, the short-run price should be set high enough to cover all variable costs and expenses.

True False

17. Eliminating a product or segment may have the long-term effect of reducing fixed costs.

True False

18. Make or buy options often arise when a manufacturer has excess productive capacity in the form of unused equipment, space, and labor.

True False

19. In addition to the differential costs in an equipment replacement decision, the remaining useful life of the old equipment and the estimated life of the new equipment are important considerations.

True False

20. 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.

True False

21. When a company is showing a net loss, it is always best to discontinue the segment in order not to continue with losses.

True False

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

True False

23. Make or buy decisions should be made only with related parties.

True False

24. Depending on the capacity of the plant, a company may best be served by further processing some of the product and leaving the rest as is, with no further processing.

True False

25. A practical approach which is frequently used by managers when setting normal long-run prices is the cost-plus approach.

True False

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

True False

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

True False

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

True False

29. In using the total cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.

True False

30. In using the product cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.

True False

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

True False

32. 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.

True False

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

True False

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

True False

35. A bottleneck begins when demand for the company’s product exceeds the ability to produce the product.

True False

36. A bottleneck happens when a key piece of manufacturing machinery can produce 1000 units per hour and demand for the product supports a production rate of 1200 units per hour.

True False

37. When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.

True False

38. The theory of constraints is a manufacturing strategy that focuses on reducing the influence of bottlenecks on a process.

True False

39. The lowest contribution margin per scarce resource is the most profitable.

True False

40. Activity-based costing provides more accurate and useful cost data than traditional systems.

True False

41. Activity-based costing is determined by charging products for only the services (activities) they used during production.

True False

42. Cost plus methods determine the normal selling price by estimating a cost amount per unit and adding a markup.

True False

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

True False

44. Under the variable cost concept, only variable costs are included in the cost amount per unit to which the markup is added.

True False

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

True False

46. The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an alternative is termed:

A. manufacturing margin

B. contribution margin

C. differential cost

D. differential revenue

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

A. period cost

B. product cost

C. differential cost

D. discretionary cost

48. A cost that will not be affected by later decisions is termed a(n):

A. period cost

B. differential cost

C. sunk cost

D. replacement cost

49. The condensed income statement for a business for the past year is presented as follows:

Product

__F__

__G__

__H__

__Total__

Sales

$300,000

$210,000

$340,000

$850,000

Less variable costs

__ 180,000__

__ 190,000__

__ 220,000__

__ 590,000__

Contribution margin

$120,000

$ 20,000

$120,000

$260,000

Less fixed costs

__ 50,000__

__ 50,000__

__ 40,000__

__ 140,000__

Income (loss) from oper.

__$ 70,000__

__$ (30,000__)

__$ 80,000__

__$120,000__

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?

A. $20,000 increase

B. $30,000 increase

C. $20,000 decrease

D. $30,000 decrease

50. The condensed income statement for a business for the past year is as follows:

Product

__T__

__U__

Sales

$660,000

$320,000

Less variable costs

__ 540,000__

__ 220,000__

Contribution margin

$ 120,000

$100,000

Less fixed costs

__ 145,000__

__ 40,000__

Income (loss) from operations

__$ (25,000__)

__$ 60,000__

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. $120,000 increase

B. $250,000 increase

C. $25,000 decrease

D. $120,000 decrease

51. A business 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 $12, not including fixed costs. If 30,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?

A. $150,000 cost increase

B. $ 90,000 cost decrease

C. $150,000 cost increase

D. $ 90,000 cost increase

52. A business is operating at 70% of capacity and is currently purchasing a part used in its manufacturing operations for $24 per unit. The unit cost for the business to make the part is $36, including fixed costs, and $28, not including fixed costs. If 15,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?

A. $60,000 cost decrease

B. $180,000 cost increase

C. $60,000 cost increase

D. $180,000 cost decrease

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

A. differential income

B. sunk cost

C. differential revenue

D. opportunity cost

54. Pheasant Co. can further process Product B to produce Product C. Product B is currently selling for $30 per pound and costs $28 per pound to produce. Product C would sell for $60 per pound and would require an additional cost of $24 per pound to produce. What is the differential cost of producing Product C?

A. $30 per pound

B. $24 per pound

C. $28 per pound

D. $60 per pound

55. Partridge Co. can further process Product J to produce Product D. Product J is currently selling for $21 per pound and costs $15.75 per pound to produce. Product D would sell for $38 per pound and would require an additional cost of $9.25 per pound to produce.

What is the differential cost of producing Product D?

A. $6.50 per pound

B. $9.25 per pound

C. $17 per pound

D. $5.25 per pound

56. Partridge Co. can further process Product J to produce Product D. Product J is currently selling for $21 per pound and costs $15.75 per pound to produce. Product D would sell for $38 per pound and would require an additional cost of $9.25 per pound to produce.

What is the differential revenue of producing Product D?

A. $6.75 per pound

B. $9.25 per pound

C. $17 per pound

D. $5.25 per pound

57. 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?

A. $32 per pound

B. $42 per pound

C. $50 per pound

D. $18 per pound

58. Raven Company is considering replacing equipment which originally cost $500,000 and which has $420,000 accumulated depreciation to date. A new machine will cost $790,000. What is the sunk cost in this situation?

A. $370,000

B. $790,000

C. $80,000

D. $290,000

59. Raptor Company is considering replacing equipment which originally cost $500,000 and which has $420,000 accumulated depreciation to date. A new machine will cost $790,000 and the old equipment can be sold for $8,000. What is the sunk cost in this situation?

A. $72,000

B. $80,000

C. $88,000

D. $290,000

60. A business is considering a cash outlay of $250,000 for the purchase of land, which it could lease for $35,000 per year. If alternative investments are available which yield an 18% return, the opportunity cost of the purchase of the land is:

A. $35,000

B. $45,000

C. $10,000

D. $6,300

61. A business is considering a cash outlay of $300,000 for the purchase of land, which it could lease for $36,000 per year. If alternative investments are available which yield an 18% return, the opportunity cost of the purchase of the land is:

A. $54,000

B. $36,000

C. $18,000

D. $72,000

62. A business is considering a cash outlay of $400,000 for the purchase of land, which it could lease for $40,000 per year. If alternative investments are available which yield a 21% return, the opportunity cost of the purchase of the land is:

A. $84,000

B. $40,000

C. $44,000

D. $ 8,400

63. A business received an offer from an exporter for 20,000 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:

Domestic unit sales price

$21

Unit manufacturing costs:

Variable

12

Fixed

5

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

A. $300,000

B. $420,000

C. $120,000

D. $240,000

64. A business received an offer from an exporter for 10,000 units of product at $17.50 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data is available:

Domestic unit sales price

$20

Unit manufacturing costs:

Variable

11

Fixed

1

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

A. $200,000

B. $175,000

C. $130,000

D. $140,000

65. A business received an offer from an exporter for 10,000 units of product at $17.50 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data is available:

Domestic unit sales price

$20

Unit manufacturing costs:

Variable

11

Fixed

1

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

A. $200,000

B. $175,000

C. $140,000

D. $110,000

66. A business received an offer from an exporter for 10,000 units of product at $17.50 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data is available:

Domestic unit sales price

$20

Unit manufacturing costs:

Variable

11

Fixed

1

What is the amount of gain or loss from acceptance of the offer?

A. $65,000 gain

B. $50,000 loss

C. $30,000 loss

D. $20,000 loss

67. A business received an offer from an exporter for 30,000 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:

Domestic unit sales price

$22

Unit manufacturing costs:

Variable

11

Fixed

6

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

A. $120,000

B. $330,000

C. $300,000

D. $510,000

68. A business received an offer from an exporter for 30,000 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:

Domestic unit sales price

$22

Unit manufacturing costs:

Variable

11

Fixed

6

What is the amount of the gain or loss from acceptance of the offer?

A. $30,000 loss

B. $40,000 gain

C. $150,000 gain

D. $50,000 gain

69. Relevant revenues and costs refer to:

A. activities that occurred in the past

B. monies already earned and/or spent

C. last year's net income

D. differences between the alternatives being considered

70. Assume that Penguin Co. is considering disposing of equipment that cost $50,000 and has $40,000 of accumulated depreciation to date. Penguin Co. can sell the equipment through a broker for $25,000 less 5% commission. Alternatively, Teal Co. has offered to lease the equipment for five years for a total of $48,750. Penguin will incur repair, insurance, and property tax expenses estimated at $10,000. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is:

A. $15,000

B. $ 5,000

C. $25,000

D. $12,500

71. 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 $.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?

A. $12,000 cost decrease

B. $4,000 cost increase

C. $20,000 cost decrease

D. $1,600 cost increase

72. Heston and Burton, CPAs, currently work a five-day week. They estimate that net income for the firm would increase by $75,000 annually if they worked an additional day each month. The cost associated with the decision to continue the practice of a five-day work week is an example of:

A. differential revenue

B. sunk cost

C. differential income

D. opportunity cost

73. 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 total net differential increase or decrease in cost for the new equipment for the entire five years is:

A. decrease of $11,000

B. decrease of $15,000

C. increase of $11,000

D. increase of $15,000

74. Nighthawk Inc. is considering disposing of a machine with a book value of $22,500 and an estimated remaining life of three years. The old machine can be sold for $6,250. A new machine with a purchase price of $68,750 is being considered as a replacement. It will have a useful life of three years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $43,750 to $20,000 if the new machine is purchased. The net differential increase or decrease in cost for the entire three years for the new equipment is:

A. $8,750 increase

B. $31,250 decrease

C. $8,750 decrease

D. $2,925 decrease

75. 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

76. 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.

Should the special order be accepted?

A. Cannot determine from the data given

B. Yes

C. No

D. There would be no difference in accepting or rejecting the special order

77. Mighty Safe Fire Alarm is currently buying 50,000 motherboard from MotherBoard, Inc. at a price of $65 per board. Mighty Safe is considering making its own boards. The costs to make the board are as follows: Direct Materials $32 per unit, Direct labor $10 per unit, Variable Factory Overhead $16.00, Fixed Costs for the plant would increase by $75,000. Which option should be selected and why?

A. Buy - $75,000 more in profits

B. Make - $275,000 increase in profits

C. Buy - $275,000 more in profits

D. Make - $350,000 increase in profits

78. Super Security Company manufacturers home alarms. Currently it is manufacturing one of its components at a variable cost of $45 and fixed costs of $15 per unit. An outside provider of this component has offered to sell Safe Security the component for $50. Determine the best plan and calculate the savings.

A. $5 savings per unit - Manufacture

B. $5 savings per unit - Purchase

C. $10 savings per unit - Manufacture

D. $15 savings per unit - Purchase

79. Discontinuing a product or segment is a huge decision that must be carefully analyzed. Which of the following would be a valid reason not to discontinue an operation?

A. The losses are minimal.

B. The variable costs are less than revenues.

C. The variable costs are more than revenues.

D. The allocated fixed costs are more than revenues.

80. Which of the following would be considered a sunk cost?

A. Purchase price of new equipment

B. Equipment rental for the production area

C. Net book value of equipment that has no market value

D. Warehouse lease expense

81. 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

82. Which of the following reasons would cause a company to reject an offer to accept business at a special price?

A. The additional sale will not conflict with regular sales.

B. The additional sales will increase differential income.

C. The additional sales will not increase fixed expenses.

D. The additional sales will increase fixed expenses.

83. A practical approach which is frequently used by managers when setting normal long-run prices is the:

A. cost-plus approach

B. economic theory approach

C. price graph approach

D. price skimming

84. Which of the following is NOT a cost concept commonly used in applying the cost-plus approach to product pricing?

A. Total cost concept

B. Product cost concept

C. Variable cost concept

D. Fixed cost concept

85. When using the total cost concept of applying the cost-plus approach to product pricing, what is included in the markup?

A. Total selling and administrative expenses plus desired profit

B. Total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit

C. Total costs plus desired profit

D. Desired profit

86. When using the product cost concept of applying the cost-plus approach to product pricing, what is included in the markup?

A. Desired profit

B. Total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit

C. Total costs plus desired profit

D. Total selling and administrative expenses plus desired profit

87. When using the variable cost concept of applying the cost-plus approach to product pricing, what is included in the markup?

A. Total costs plus desired profit

B. Desired profit

C. Total selling and administrative expenses plus desired profit

D. Total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit

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

A. Total cost concept

B. Product cost concept

C. Variable cost concept

D. Sunk cost concept

89. What cost concept used in applying the cost-plus approach to product pricing includes only desired profit in the "markup"?

A. Product cost concept

B. Variable cost concept

C. Sunk cost concept

D. Total cost concept

90. What cost concept used in applying the cost-plus approach to product pricing includes only total manufacturing costs in the "cost" amount to which the markup is added?

A. Variable cost concept

B. Total cost concept

C. Product cost concept

D. Opportunity cost concept

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

A. Variable cost

B. Product cost

C. Total cost

D. Fixed cost

92. The target cost approach assumes that:

A. markup is added to total cost

B. the selling price is set by the marketplace

C. markup is added to variable cost

D. markup is added to product cost

93. 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.

Fixed factory overhead cost

$38,700

Fixed selling and administrative costs

7,500

Variable direct materials cost per unit

4.60

Variable direct labor cost per unit

1.88

Variable factory overhead cost per unit

1.13

Variable selling and administrative cost per unit

4.50

The dollar amount of desired profit from the production and sale of the company's product is:

A. $175,000

B. $67,200

C. $73,500

D. $96,000

94. 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.

Fixed factory overhead cost

$38,700

Fixed selling and administrative costs

7,500

Variable direct materials cost per unit

4.60

Variable direct labor cost per unit

1.88

Variable factory overhead cost per unit

1.13

Variable selling and administrative cost per unit

4.50

The cost per unit for the production and sale of the company's product is:

A. $12.11

B. $12.88

C. $15

D. $13.50

95. 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.

Fixed factory overhead cost

$38,700

Fixed selling and administrative costs

7,500

Variable direct materials cost per unit

4.60

Variable direct labor cost per unit

1.88

Variable factory overhead cost per unit

1.13

Variable selling and administrative cost per unit

4.50

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

A. 21.0%

B. 22.7%

C. 15.8%

D. 24.0%

96. 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.

Fixed factory overhead cost

$38,700

Fixed selling and administrative costs

7,500

Variable direct materials cost per unit

4.60

Variable direct labor cost per unit

1.88

Variable factory overhead cost per unit

1.13

Variable selling and administrative cost per unit

4.50

The unit selling price for the company's product is:

A. $15.00

B. $13.82

C. $15.80

D. $14.76

97. 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.

Fixed factory overhead cost

$82,000

Fixed selling and administrative costs

45,000

Variable direct materials cost per unit

5.50

Variable direct labor cost per unit

7.65

Variable factory overhead cost per unit

2.25

Variable selling and administrative cost per unit

.90

The dollar amount of desired profit from the production and sale of the company's product is:

A. $105,840

B. $225,000

C. $ 96,000

D. $220,500

98. 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.

Fixed factory overhead cost

$82,000

Fixed selling and administrative costs

45,000

Variable direct materials cost per unit

5.50

Variable direct labor cost per unit

7.65

Variable factory overhead cost per unit

2.25

Variable selling and administrative cost per unit

.90

The cost per unit for the production of the company's product is:

A. $13.15

B. $17.22

C. $15.40

D. $15.75

99. 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.

Fixed factory overhead cost

$82,000

Fixed selling and administrative costs

45,000

Variable direct materials cost per unit

5.50

Variable direct labor cost per unit

7.65

Variable factory overhead cost per unit

2.25

Variable selling and administrative cost per unit

.90

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

A. 23.4%

B. 10.98%

C. 26.1%

D. 18%

100. 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.

Fixed factory overhead cost

$82,000

Fixed selling and administrative costs

45,000

Variable direct materials cost per unit

5.50

Variable direct labor cost per unit

7.65

Variable factory overhead cost per unit

2.25

Variable selling and administrative cost per unit

.90

The unit selling price for the company's product is:

A. $19.35

B. $15.75

C. $22.05

D. $21.26

101. 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.

Fixed factory overhead cost

$105,000

Fixed selling and administrative costs

35,000

Variable direct materials cost per unit

4.34

Variable direct labor cost per unit

5.18

Variable factory overhead cost per unit

.98

Variable selling and administrative cost per unit

.70

The dollar amount of desired profit from the production and sale of the company's product is:

A. $89,600

B. $39,200

C. $70,000

D. $84,000

102. 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.

Fixed factory overhead cost

$105,000

Fixed selling and administrative costs

35,000

Variable direct materials cost per unit

4.34

Variable direct labor cost per unit

5.18

Variable factory overhead cost per unit

.98

Variable selling and administrative cost per unit

.70

The variable cost per unit for the production and sale of the company's product is:

A. $14.00

B. $12.60

C. $9.80

D. $11.20

103. 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.

Fixed factory overhead cost

$105,000

Fixed selling and administrative costs

35,000

Variable direct materials cost per unit

4.34

Variable direct labor cost per unit

5.18

Variable factory overhead cost per unit

.98

Variable selling and administrative cost per unit

.70

The markup percentage for the sale of the company's product is:

A. 14%

B. 5.6%

C. 45.71%

D. 11.2%

104. 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.

Fixed factory overhead cost

$105,000

Fixed selling and administrative costs

35,000

Variable direct materials cost per unit

4.34

Variable direct labor cost per unit

5.18

Variable factory overhead cost per unit

.98

Variable selling and administrative cost per unit

.70

The unit selling price for the company's product is:

A. $16.32

B. $13.44

C. $12.10

D. $13.72

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

A. Demand-based concept

B. Total cost concept

C. Cost-plus concept

D. Competition-based concept

106. What pricing concept is used if all costs are considered and a fair mark-up is added to determine the selling price?

A. Total cost concept

B. Demand-based concept

C. Variable cost concept

D. Fixed cost concept

107. Which equation better describes Target Costing?

A. Selling Price - Desired Profit = Target Costs

B. Selling Price + Profit = Target Costs

C. Target Variable Costs + Contribution Margin = Selling Price

D. Selling Price = Profit - Target Variable Costs

108. 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 product cost.

A. 80%

B. 46.5%

C. 70%

D. 110%

109. 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.

A. 100%

B. 110%

C. 80%

D. 46.5%

110. 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 total cost.

A. 100%

B. 110%

C. 80%

D. 46.5%

111. Target costing is arrived at by

A. taking the selling price and subtracting desired profit.

B. taking the selling price and adding desired profit.

C. taking the selling price and subtracting the budget standard cost.

D. taking the budget standard cost and reducing it by 10%.

112. Paint Company manufactures Paint X and Paint Y and can sell all it can make of either. Based on the following data, assuming the number of hours is a constraint, which statement is true,?

__X__

__Y__

Sales Price

$32

$40

Variable Cost

22

24

Hours needed to process

5

8

A. X is more profitable than Y

B. Y is more profitable than X

C. Neither X nor Y is profitable.

D. X and Y are equally profitable.

113. 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?

A. Bales

B. Tales

C. Wales

D. Bales and Tales have the same

114. 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?

A. $5

B. $7

C. $35

D. $28

115. 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 Tales?

A. $4

B. $7

C. $28

D. $35

116. 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.<

## [Solved] Chapter 25--Differential Analysis and Product Pricing

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### Premiere Products Exercise Chapter 2 | Complete Solution

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