Question 1

Managers who often make special pricing decisions are more likely to use which of the following cost concepts in their work?

Accepted Answer

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

Question 2

When choosing whether or not to replace a fixed asset, management will consider the price at which the asset can be sold.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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. $\begin{array}{ll}
\$ 72,000 & \text { Fixed factory overhead cost } \
45,000 & \text { Fixed selling and administrative costs } \
4.50 & \text { Variable direct materials cost per unit } \
7.65 & \text { Variable direct labor cost per unit } \
2.25 & \text { Variable factory overhead cost per unit } \
0.90 & \text { Variable selling and administrative cost per unit }
\end{array}$
 Refer to the information provided for Bythel Corporation. The markup percentage for the company's product is:

Accepted Answer

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

Question 5

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

Accepted Answer

A)  Total selling and administrative expenses plus desired profit 
B)  Total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit 
C)  Total costs plus desired profit 
D)  Desired profit

Question 6

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. $\begin{array}{ll}
\$ 72,000 & \text { Fixed factory overhead cost } \
45,000 & \text { Fixed selling and administrative costs } \
4.50 & \text { Variable direct materials cost per unit } \
7.65 & \text { Variable direct labor cost per unit } \
2.25 & \text { Variable factory overhead cost per unit } \
0.90 & \text { Variable selling and administrative cost per unit }
\end{array}$
 Refer to the information provided for Bythel Corporation. 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 7

In deciding whether to accept business at a special price when the company is operating below full capacity, the special price should be set high enough to cover both the fixed and variable costs.

Accepted Answer

A) True 
 B)False

Question 8

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: $\begin{array}{lrr}
  \text { Domestic urit sales price } &\$12\
 \text { Unit manufactuing costs } &\
 \text {  Variable } &9\
 \text {  Fixed} &1\
\end{array}$

Based on the above data, 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 9

Soap Company manufactures Soap X and Soap Y and can sell all it can make of either. Hours available to produce the products is the constrained resources. Based on the following data, if Soap could reduce the processing time for X by 10%, which of the following statements is true? $\begin{array}{|c|c|l|}
\hline\mathrm{Y} & \mathrm{X}\
\hline \$ 25 & \$ 20 & \text { Sales Price } \
\hline 15 & 14 & \text { Variable Cost } \
\hline 5 & 3 & \text { Hours needed to process } \
\hline
\end{array}$

Accepted Answer

A)  It would take 162 minutes to process one unit of X. 
B)  There would be no difference in the contribution margin per hour as compared to it before the processing time reduction. 
C)  The contribution margin per hour for X would be $2. 
D)  Soap Y would still be the most profitable.

Question 10

Kirk Co. manufactures mobile cellular equipment and develops a price for the product by using a variable cost concept. Kirk incurs variable costs of $1,900,000 in the production of 100,000 units. 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.
 (a)Compute a markup percentage based on the variable costs concept.
(b) Detemine a selling price.

Accepted Answer

The answer of Kirk Co. manufactures mobile cellular equipment and...

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

Brickman's Pharmacy sells a variety of products. The business is divided into four segments or departments for reporting purposes. The departments and their operating results are shown below:
  The fixed costs consist of insurance, property taxes, interest, and other costs that will not be eliminated if a department is discontinued.
Brickman's management is considering eliminating the grocery department. Assuming sales in the other departments will not be affected by dropping the grocery department, what will be the effect on the company's total operating income?

Accepted Answer

The answer of Brickman's Pharmacy sells a variety of products....

Question 14

Raphael Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 50,000 units of its sole product. Raphael desires a profit equal to a 12% rate of return on invested assets of $1,000,000. $\begin{array}{ll}
\$ 80,000.00 & \text { Fixed factory overhead cost } \
50,000.00 & \text { Fixed selling and administrative costs } \
5.00 & \text { Variable direct materials cost per urit } \
8.50 & \text { Variable direct labor cost per unit } \
2.50 & \text { Variable factory overhead cost per urit } \
1.00 & \text { Variable selling and admiristrative cost per urit }
\end{array}$ Refer to the information provided for Raphael Corporation. The dollar amount of desired profit from the production and sale of the company's product is:

Accepted Answer

A)  $117,600. 
B)  $250,000. 
C)  $120,000. 
D)  $245,000.

Question 15

Granger Co. can further process Product B to produce C.  Product B is currently selling for $55 per pound and costs $42 per pound to produce. Product C would sell for $82 per pound and would require an additional cost of $13 per pound to produce. What is the differential revenue of producing and selling Product C?

Accepted Answer

A)  $15 per pound 
B)  $42 per pound 
C)  $45 per pound 
D)  $27 per pound

Question 16

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. $\begin{array}{ll}
\$ 72,000 & \text { Fixed factory overhead cost } \
45,000 & \text { Fixed selling and administrative costs } \
4.50 & \text { Variable direct materials cost per unit } \
7.65 & \text { Variable direct labor cost per unit } \
2.25 & \text { Variable factory overhead cost per unit } \
0.90 & \text { Variable selling and administrative cost per unit }
\end{array}$
 Refer to the information provided for Bythel Corporation. The unit selling price for the company's product is:

Accepted Answer

A)  $17.00. 
B)  $13.94. 
C)  $20.06. 
D)  $20.96.

Question 17

In deciding whether to accept business at a special price when the company is operating at full capacity, the special price should be set high enough to cover all fixed and variable costs and expenses.

Accepted Answer

A) True 
 B)False

Question 18

The revenue that is forgone from an alternative use of an asset, such as cash, is called an opportunity cost.

Accepted Answer

A) True 
 B)False

Question 19

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 20

The theory of constraints is a manufacturing strategy that focuses on reducing the influence of bottlenecks on production processes.

Accepted Answer

A) True 
 B)False

Exam 12: Differential Analysis and Product Pricing

Managers who often make special pricing decisions are more likely to use which of the following cost concepts in their work?

When choosing whether or not to replace a fixed asset, management will consider the price at which the asset can be sold.

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

In deciding whether to accept business at a special price when the company is operating below full capacity, the special price should be set high enough to cover both the fixed and variable costs.

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

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.

In deciding whether to accept business at a special price when the company is operating at full capacity, the special price should be set high enough to cover all fixed and variable costs and expenses.

The revenue that is forgone from an alternative use of an asset, such as cash, is called an opportunity cost.

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 theory of constraints is a manufacturing strategy that focuses on reducing the influence of bottlenecks on production processes.