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

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

Delaney Company is considering replacing equipment which originally cost $600,000 and which has $420,000 accumulated depreciation to date. A new machine will cost $790,000. What is the sunk cost in this situation?

Crane Company Division B recorded sales of $360,000, variable cost of goods sold of $315,000, variable selling expenses of $13,000, and fixed costs of $61,000; creating a loss from operations of $29,000. Determine the differential income or loss from the sales of Division B. Should this division be discontinued?

What is the desired profit per unit?

Finch, Inc. has bought a new server and must decide what to do with the old one. The cost of the old server was originally $60,000 and has been depreciated $45,000. The company has received two offers. One offer was made to purchase the equipment outright for $18,500 less a 5% sales commission. The other offer was to lease the equipment for $7,000 for the next five years but the company will be required to provide maintenance and insurance totaling $3,000 per year. What offer should Finch, Inc. accept?

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

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: Domestic unit sales price $21 Unit manufacturing costs: Variable 12 Fixed 5 What is the differential revenue from the acceptance of the offer?

If the company cannot cut costs any lower than they already are, what would the profit margin on sales be to meet the market selling price?

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

Match the definitions that follow with the term a-e) it defines. -Sets the price according to competitors

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?

Delaney Company is considering replacing equipment which originally cost $600,000 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?

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

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

Heston and Burton, CPA's, 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 an)

Match each of the definitions that follow with the term a-e) it defines. -Changing tooling when preparing for a new product

Lark Art Company sells unfinished wooden decorations at a price of $15.00. The current profit margin is $5.00 per decoration. The company is considering taking individual orders and customizing them for customers. To finish the decoration, the company would have to pay additional labor of $3.00 per unit, additional materials costing an average of $4.00 per unit, and fixed costs would increase by $1,500. If the company estimates that it can sell 600 units for $25.00 per unit each month, should it start taking the orders?

Match each of the definitions that follow with the term a-e) it defines. -Revenue forgone from an alternative use of an asset

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?

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