Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

When choosing whether or NOT to replace usable fixed assets,management should consider the price at which the asset can be sold.

Accepted Answer

A) True 
 B)False

Question 4

A business 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 21% return,the opportunity cost of the purchase of the land is

Accepted Answer

A) $105,000. 
B) $40,000. 
C) $65,000. 
D) $8,400.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

The markup percentage for the company's product is

Accepted Answer

A) 21.0%. 
B) 25.4%. 
C) 15.7%. 
D) 24.0%.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Which equation better describes target costing?

Accepted Answer

A) Selling Price - Desired Profit = Target Costs 
B) Selling Price - Target Costs = Profit 
C) Target Variable Costs + Contribution Margin = Selling Price 
D) Selling Price = Target Variable Costs + Target Fixed Costs + Profit

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

In attempting to improve profitability when faced with a bottleneck that is involved in the production of two or more products,which of the following is most important for management to consider?

Accepted Answer

A) Contribution margin per unit for each product 
B) Time required for each different product passing through the bottleneck 
C) Selling price or sales revenue generated by each product produced through the bottleneck 
D) Contribution margin per bottleneck hour for each product

Question 12

Tidewater Company uses the product cost concept of applying the cost-plus approach to product pricing.The cost and expenses of producing and selling 50,000 units of Product K are as follows:
  
Tidewater desires a profit equal to a 10% rate of return on invested assets of $1,285,000.

Accepted Answer

The answer of Tidewater Company uses the product cost concept...

Question 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

A) $10,000 increase 
B) $20,000 increase 
C) $10,000 decrease 
D) $20,000 decrease

Question 15

Sanchez Company is considering replacing equipment that originally cost $300,000 and that has $280,000 accumulated depreciation to date.A new machine will cost $450,000.What is the sunk cost in this situation?

Accepted Answer

A) $150,000 
B) $280,000 
C) $20,000 
D) $300,000

Question 16

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

Accepted Answer

A) manufacturing margin. 
B) contribution margin. 
C) differential cost. 
D) differential revenue.

Question 17

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

Accepted Answer

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

Question 18

Quick Company has been purchasing a component,Part Q,for $20 a unit.Quick is currently operating at 70% of capacity and no significant increase in production is anticipated in the near future.The cost of manufacturing a unit of Part Q,determined by absorption costing methods,is estimated as follows:
  
Prepare a differential analysis report,dated March 12 of the current year,on the decision to make or buy Part Q.

Accepted Answer

The answer of Quick Company has been purchasing a component,Part...

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

When eliminating a product or segment of a business,the fixed costs pertaining to the product or segment will always be eliminated.

Accepted Answer

A) True 
 B)False

Exam 12: Differential Analysis and Product Pricing

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.

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

When choosing whether or NOT to replace usable fixed assets,management should consider the price at which the asset can be sold.

A business 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 21% return,the opportunity cost of the purchase of the land is

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

The markup percentage for the company's product is

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

Which equation better describes target costing?

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

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

In attempting to improve profitability when faced with a bottleneck that is involved in the production of two or more products,which of the following is most important for management to consider?

Tidewater Company uses the product cost concept of applying the cost-plus approach to product pricing.The cost and expenses of producing and selling 50,000 units of Product K are as follows: Tidewater desires a profit equal to a 10% rate of return on invested assets of $1,285,000.

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

Sanchez Company is considering replacing equipment that originally cost $300,000 and that has $280,000 accumulated depreciation to date.A new machine will cost $450,000.What is the sunk cost in this situation?

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

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

When eliminating a product or segment of a business,the fixed costs pertaining to the product or segment will always be eliminated.