Exam 25: Differential Analysis and Product Pricing

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

Which equation better describes Target Costing?

The Canine Company has total estimated factory overhead for the year of $2,400,000, divided into four activities: Fabrication, $1,200,000; Assembly, $480,000; Setup, $400,000; and Materials Handling $320,000. Canine manufactures two products: Standard Crates and Deluxe Crates. The activity-base usage quantities for each product by each activity are as follows: Each product is budgeted for 20,000 units of production for the year. Determine (a) the activity rates for each activity and (b) the factory overhead cost per unit for each product using activity-based costing.

The Stewart Cake Factory sells chocolate cakes, birthday decorated cakes, and specialty cakes. The factory is experiencing a bottleneck and is trying to determine which cake is more profitable. Even though the company may have to limit the orders that it takes, they are concerned about customer service and satisfaction. (A) Calculate the contribution margin per hour per cake. (B) Determine which cakes the company should try to sell more of first, second, and then last.

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.

If the company meets the new target cost number, how much will they have to cut costs per unit, if any?

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

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

Carillion Company is considering the disposal of equipment that is no longer needed for operations. The equipment originally cost $600,000 and accumulated depreciation to date totals $460,000. An offer has been received to lease the machine for its remaining useful life for a total of $310,000, after which the equipment will have no salvage value. The repair, insurance, and property tax expenses that would be incurred by Carillion Company on the machine during the period of the lease are estimated at $75,800. Alternatively, the equipment can be sold through a broker for $230,000 less a 10% commission. Prepare a differential analysis report, dated June 15 of the current year, on whether the equipment should be leased or sold.

Yakking Co. manufactures mobile cellular equipment and develops a price for the product by using the variable cost concept. Yakking incurs variable costs of $1,900,000 in the production of 100,000 units while fixed costs total $50,000. The company employs $4,725,000 of assets and wishes to earn a profit equal to a 10% rate of return on assets. Round your markup percentage to one decimal place, and other intermediate calculations and final answer to two decimal places.

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:

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.

Using the variable cost concept determine the selling price for 30,000 units using the following data: Variable cost per unit $15.00, total fixed costs $90,000 and desired profit $150,000.

Flyer Company sells a product in a competitive marketplace. Market analysis indicates that their product would probably sell at $48 per unit. Flyer management desires a 12.5% profit margin on sales. Their current full cost per unit for the product is $44 per unit. What is the target cost of the company's product?

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.

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?

Using the variable cost concept determine the selling price for 30,000 units using the following data: Variable cost per unit $15.00, total fixed costs $90,000 and desired profit $150,000.

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

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:

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