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Exam 24: Differential Analysis and Product Pricing

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Question 81

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The Porter Beverage Factory owns a building for its operations.Porter uses only half of the building and is considering two options for the unused space.The Popcorn Store would like to purchase the half of the building that is not being used for $550,000.A 5% commission would have to be paid at the time of purchase.Salty Snacks would like to lease the half of the building for the next 5 years at $100,000 each year.Stewart would have to continue paying $15,000 of property taxes each year and $2,000 of yearly insurance on the property,according to the proposed lease agreement. ​ Determine the differential income or loss from the lease alternative.

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Question 82

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Manufacturers must conform to the Robinson-Patman Act,which prohibits price discrimination within the United States unless differences in prices can be justified by different costs of serving different customers.

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Question 83

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

Rowan Quinn Company manufactures kitchen appliances.Currently,it is manufacturing one of its components at a variable cost of $40 and fixed costs of $15 per unit.An outside provider of this component has offered to sell Rowan Quinn the component for $45.Determine the best plan and calculate the savings assuming fixed costs are unaffected by the decision.

Match the definitions that follow with the term (a-e) it defines. -Sets the price according to competitors

The differential revenue of producing Product P is $82 per pound.

Opportunity cost is the amount of increase or decrease in cost that would result from the best available alternative to the proposed use of cash or its equivalent.

Moon Company uses the variable cost concept of applying the cost-plus approach to product pricing.The costs and expenses of producing and selling 75,000 units of Product T are as follows: ​ Moon desires a profit equal to an18% rate of return on invested assets of $1,440,000. Round your markup percentage to one decimal place and other intermediate calculations and final answer to two decimal places.

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.

Gull Corp.is considering selling its old popcorn machine and replacing it with a newer one.The old machine has a book value of $5,000 and its remaining useful life is 5 years.Annual costs are $4,000.A high school is willing to buy it for $2,000.New equipment would cost $18,000 with annual operating costs of $1,500.The new machine has an estimated useful life of 5 years. ​ Should the machine be replaced?

Jay Company uses the total cost concept of applying the cost-plus approach to product pricing.The costs and expenses of producing and selling 38,400 units of Product E are as follows: ​ Jay desires a profit equal to a 14% rate of return on invested assets of $640,000.

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?

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

Keating Co.is considering disposing of equipment that cost $50,000 and has $40,000 of accumulated depreciation to date.Keating Co.can sell the equipment through a broker for $25,000 less 5% commission.Alternatively,Gunner Co.has offered to lease the equipment for five years for a total of $48,750.Keating will incur repair,insurance,and property tax expenses estimated at $8,000 over the five-year period.At lease-end,the equipment is expected to have no residual value.The net differential income from the lease alternative is

Match the definitions that follow with the term (a-e) it defines. -Evaluation of how income will change based on an alternative course of action

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 $12.

What is the contribution margin per machine hour for Tales?

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 Desired profit $150,000

What is the differential revenue of producing Product D?

The condensed income statement for a Hayden Corp.for the past year is as follows: ​ Management is considering the discontinuance of the manufacture and sale of Product T 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 Product U.What is the amount of change in net income for the current year that will result from the discontinuance of Product T?