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d. $60,000 increase
83. Soap Company manufactures Soap X and Soap Y and can sell all it can make of either. Hours available to produce the
products are the constrained resources. Based on the following data, which statement is true?
X Y
Sales Price $20 $25
Variable Cost 14 15
Hours needed to process 3 5
a. X is more profitable than Y.
b. Y is more profitable than X.
c. Neither X nor Y have a positive contribution margin.
d. X and Y are equally profitable.
84. Managers who often make special pricing decisions are more likely to use which of the following cost concepts in
their work?
a. Total cost
b. Product cost
c. Variable cost
d. Fixed cost
85. Target costing is arrived at by _____.
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%
86. Yellco Inc., a toy manufacturer, provided the following information:
Domestic unit sales price $50
Unit manufacturing costs:
Variable 10
Fixed 8
The company has received an offer from an exporter for 9,000 units of toys at $60 per unit. The additional business is not
expected to affect the normal production or domestic sales prices of Yellco Inc. The company's differential revenue from
the acceptance of the offer is _____.
a. $450,000
b. $720,000
c. $540,000
d. $225,000
87. Soap Company manufactures Soap X and Soap Y and can sell all it can make of either. Hours available to produce the
products are 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?
X Y
Sales Price $20 $25
Variable Cost 14 15
Hours needed to process 3 5
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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.
88. A business received an offer from an exporter for 10,000 units of product at $13.50 per unit. The acceptance of the
offer will not affect normal production or domestic sales prices. The following data are available:
Domestic unit sales price $21
Unit manufacturing costs:
Variable 12
Fixed 5
What is the amount of the gain or loss from acceptance of the offer?
a. $75,000 loss
b. $40,000 gain
c. $15,000 gain
d. $85,000 gain
89. Red Co. uses the product cost concept of applying the cost-plus approach to product pricing. The following is cost
information for the production and sale of 40,000 units of its sole product. Red Co. desires a profit equal to a 15% rate of
return on invested assets of $1,200,000.
Fixed factory overhead cost $80,000.00
Fixed selling and administrative costs 140,000.00
Variable direct materials cost per unit 7.00
Variable direct labor cost per unit 11.00
Variable factory overhead cost per unit 3.00
Variable selling and administrative cost per unit 2.00
The dollar amount of desired profit from the production and sale of the company's product is _____.
a. $70,000
b. $60,000
c. $180,000
d. $140,000
90. The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an
alternative is termed _____.
a. manufacturing margin
b. differential margin
c. deferred revenue
d. differential revenue
91. The condensed income statement for a business for the past year is presented as follows:
Product
F G H Total
Sales $200,000 $180,000 $320,000 $700,000
Less variable costs 120,000 160,000 200,000 480,000
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Contribution margin $ 80,000 $ 20,000 $120,000 $220,00
Less fixed costs 25,000 30,000 40,000 95,000
Income (loss) from operations $ 55,000 $10,000 $ 80,000 $125,000
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?
a. $10,000 increase
b. $20,000 increase
c. $10,000 decrease
d. $20,000 decrease
92. In using the total cost concept of applying the cost-plus approach to product pricing, what is included in the markup?
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
93. Blue Lights Co. uses the total cost concept of applying the cost-plus approach to product pricing. The costs of
producing and selling 7,700 units are as follows:
Fixed factory overhead cost $60,000
Fixed selling and administrative costs 120,000
Variable direct materials cost per unit 80
Variable direct labor cost per unit 150
Variable factory overhead cost per unit 50
Variable selling and administrative cost per unit 30
If the amount of desired profit is $285,000, calculate the total cost markup percentage per unit. (Round answer to two
decimal places)
a. 9.30%
b. 11.10%
c. 15.70%
d. 12.86%
94. FDE Manufacturing Company has a normal plant capacity of 75,000 units per month. Because of an extra large
quantity of inventory on hand, it expects to produce only 60,000 units in May. Monthly fixed costs and expenses are
$150,000 ($2 per unit at normal plant capacity), and variable costs and expenses are $13 per unit. The present selling price
is $25 per unit. The company has an opportunity to sell 5,000 additional units at $14.30 per unit to an exporter who plans
to market the product under its own brand name in a foreign market. The additional business is therefore not expected to
affect the regular selling price or quantity of sales of FDE Manufacturing Company.
Prepare a differential analysis report, dated April 21 of the current year, on the proposal to sell at the special price.
95. Pull 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 $300,000, after which the equipment will have no salvage value. The
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repair, insurance, and property tax expenses 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.
96. Grey Inc. has been purchasing a component, Z for $85 a unit. The company is currently operating at 75% of full
capacity, and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Z,
determined by absorption costing method, is estimated as follows:
Direct materials $30
Direct labor 15
Variable factory overhead 26
Fixed factory overhead 10
Total $81
Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Z.
97. 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:
Variable costs:
Direct materials $ 5.00
Direct labor 8.50
Factory overhead 2.50
Selling and administrative expenses 1.00
Total $ 17.00
Fixed costs:
Factory overhead $50,000
Selling and administrative expenses 34,000
Tidewater desires a profit equal to a 10% rate of return on invested assets of $1,285,000.
(a) Determine the amount of desired profit from the production and sale of Product K.
(b) Determine the total manufacturing costs and the cost amount per unit for the production and sale of 50,000 units of
Product K.
(c) Determine the markup percentage for Product K.
(d) Determine the selling price of Product K.
98. Glover Inc. manufactures Product B, incurring variable costs of $15.00 per unit and fixed costs of $70,000. Glover
desires a profit equal to a 12% rate of return on assets. Assets of $785,000 are devoted to producing Product B, and
100,000 units are expected to be produced and sold.
(a) Compute the markup percentage using the total cost concept.
(b) Compute the selling price of Product B.
99. Product J is one of the many products manufactured and sold by Gooble Company. An income statement by product
line for the past year indicated a net loss for Product J of $7,250. This net loss resulted from sales of $265,000, cost of
goods sold of $186,500, and operating expenses of $85,750. It is estimated that 30% of the cost of goods sold represents
fixed factory overhead costs and that 40% of the operating expense is fixed. If Product J is retained, the revenue, costs,
and expenses are not expected to change significantly from those of the current year. However, because of the net loss,
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management is considering the elimination of the unprofitable endeavor. Because of the large number of products
manufactured, the total fixed costs and expenses are not expected to decline significantly if Product J is discontinued.
Prepare a differential analysis report, dated February 8 of the current year, on the proposal to discontinue Product J.
100. 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 as follows:
Pharmaceuticals Cosmetics Grocery Household
Sales Revenue $ 600,000 $ 300,000 $ 200,000 $ 400,000
Variable Costs 425,000 200,000 170,000 250,000
Contribution Margin $ 175,000 $ 100,000 $ 30,000 $ 150,000
Fixed Costs 80,000 60,000 40,000 80,000
Net Income (Loss) $ 95,000 $ 40,000 $ (10,000) $ 70,000
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?
101. Jarvis Company uses the total cost concept of applying the cost-plus approach to product pricing. The costs and
expenses of producing and selling 35,000 units of Product E are as follows:
Variable costs:
Direct materials $ 3.00
Direct labor 1.25
Factory overhead 0.75
Selling and administrative expenses 3.00
Total $ 8.00
Fixed costs:
Factory overhead $50,000
Selling and administrative expenses 20,000
Jarvis desires a profit equal to a 14% rate of return on invested assets of $450,000.
(a) Determine the amount of desired profit from the production and sale of Product E.
(b) Determine the total costs and the cost amount per unit for the production and sale of 35,000 units of Product E.
(c) Determine the markup percentage for Product E.
(d) Determine the selling price of Product E.
102. 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) Determine a selling price.
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Answer Key
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