Exam 25: Differential Analysis and Product Pricing

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.​ -Using the variable cost method, the markup per unit for 30,000 units (rounded to the nearest dollar) using the following data is Variable cost per unit $15 Total fixed costs $90,000 Desired profit $150,000

Yield pricing is a type of "accepting business at a special price" differential analysis.

A cost that has been incurred in the past, cannot be recouped, and is not relevant to future decisions is termed a

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.

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 of the company's product is

Nighthawk Inc. is considering disposing of an old 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 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 three-year differential effect on profit from replacing the machine is a(n)

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

Match each phrase that follows with the term (a-e) it describes. Some terms may not be used and other terms may be used more than once. -Fixed costs are included in the markup A)Total cost method B)Variable cost method C)Normal selling price D)Product cost method E)Yield pricing

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.

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

Farris Company is considering a cash outlay of $500,000 for the purchase of land, which it could lease for $40,000 per year. If alternative investments are available that yield a 15% return, the opportunity cost of the purchase of the land is

Sensational Soft Drinks makes three products: iced tea, soda, and lemonade. The following data are available: Sensational is experiencing a bottleneck in one of its processes that affects each product as follows: Iced Tea Soda Lemonade Bottleneck process hours per unit 3 3 4

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

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

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

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 desired profit per unit is

Which of the following methods used in applying the cost-plus approach to product pricing includes only desired profit in the markup?

Yasmin 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 $55 per pound and would require an additional cost of $31 per pound to produce. The differential cost of producing Product C is

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

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