Question 1

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?

Accepted Answer

A) Variable cost concept 
B) Total cost concept 
C) Product cost concept 
D) Opportunity cost concept

Question 2

The highest contribution margin per scarce resource is the most profitable.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Frank Co.is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $25 unit.The unit cost for Frank Co.to make the part is $30,which includes $3 of fixed costs.If 20,000 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?

Accepted Answer

A) $60,000 cost decrease 
B) $40,000 cost decrease 
C) $40,000 cost increase 
D) $60,000 cost increase

Question 5

A business received an offer from an exporter for 5,000 units of product at $10 per unit.
The acceptance of the offer will not affect normal production or domestic sales prices.
The following data are available:
 
-What is the differential revenue from the acceptance of the offer?

Accepted Answer

A) $45,000 
B) $40,000 
C) $50,000 
D) $60,000

Question 6

What is the differential cost of producing Product D?

Accepted Answer

A) $7 per pound 
B) $5.25 per pound 
C) $14 per pound 
D) $8.75 per pound

Question 7

Bythel 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.Bythel desires
a profit equal to a 10.8% rate of return on invested assets of $900,000.
 
-The dollar amount of desired profit from the production and sale of the company's product is

Accepted Answer

A) $97,200. 
B) $67,200. 
C) $73,500. 
D) $96,000.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

If the total unit cost of manufacturing Product Y is currently $40 and the total unit cost after modifying the style is estimated to be $48,the differential cost for this situation is $48.

Accepted Answer

A) True 
 B)False

Question 10

What cost concept used in applying the cost-plus approach to product pricing includes total manufacturing costs and total selling and administrative expenses in the "cost" amount to which the markup is added?

Accepted Answer

A) Variable cost concept 
B) Total cost concept 
C) Product cost concept 
D) Opportunity cost concept

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

In contrast to the total product and variable cost concepts used in setting seller's prices,the target cost approach assumes that

Accepted Answer

A) a markup is added to total cost. 
B) selling price is set by the marketplace. 
C) a markup is added to variable cost. 
D) a markup is added to product cost.

Question 13

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?

Accepted Answer

A) $150,000 cost increase 
B) $ 90,000 cost decrease 
C) $150,000 cost decrease 
D) $ 90,000 cost increase

Question 14

What is the differential revenue of producing Product D?

Accepted Answer

A) $14 per pound 
B) $8.75 per pound 
C) $7 per pound 
D) $5.25 per pound

Question 15

A business is considering a cash outlay of $200,000 for the purchase of land,which it could lease for $35,000 per year.If alternative investments are available that yield an 18% return,the opportunity cost of the purchase of the land is

Accepted Answer

A) $35,000. 
B) $36,000. 
C) $1,000. 
D) $37,000.

Question 16

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

Accepted Answer

A) differential income. 
B) sunk cost. 
C) differential revenue. 
D) opportunity cost.

Question 17

Dinkins Inc.is considering disposing of a machine with a book value of $50,000 and an estimated remaining life of five years.The old machine can be sold for $15,000.A new machine with a purchase price of $150,000 is being considered as a replacement.It will have a useful life of five years and no residual value.It is estimated that variable manufacturing costs will be reduced from $70,000 to $45,000 if the new machine is purchased.The net differential increase or decrease in cost for the entire five years for the new equipment is

Accepted Answer

A) $10,000 increase. 
B) $25,000 decrease. 
C) $10,000 decrease. 
D) $25,000 increase.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Hill Co.can further process Product O to produce Product P.Product O is currently selling for $65 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 $17 per pound.

Accepted Answer

A) True 
 B)False

Question 20

Target costing is arrived at by

Accepted Answer

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%.

Exam 12: Differential Analysis and Product Pricing

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?

The highest contribution margin per scarce resource is the most profitable.

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

A business received an offer from an exporter for 5,000 units of product at $10 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: -What is the differential revenue from the acceptance of the offer?

What is the differential cost of producing Product D?

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

If the total unit cost of manufacturing Product Y is currently $40 and the total unit cost after modifying the style is estimated to be $48,the differential cost for this situation is $48.

What cost concept used in applying the cost-plus approach to product pricing includes total manufacturing costs and total selling and administrative expenses in the "cost" amount to which the markup is added?

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.

In contrast to the total product and variable cost concepts used in setting seller's prices,the target cost approach assumes that

What is the differential revenue of producing Product D?

A business is considering a cash outlay of $200,000 for the purchase of land,which it could lease for $35,000 per year.If alternative investments are available that yield an 18% return,the opportunity cost of the purchase of the land is

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

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

Target costing is arrived at by