99. Mallard 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. Mallard desires a profit equal to a 12% rate of return on
invested assets of $800,000.
Fixed factory overhead cost
$82,000
Fixed selling and administrative costs
45,000
Variable direct materials cost per unit
5.50
Variable direct labor cost per unit
7.65
Variable factory overhead cost per unit
2.25
Variable selling and administrative cost per unit
.90
The markup percentage on product cost for the company’s product is:
100. Mallard 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. Mallard desires a profit equal to a 12% rate of return on
invested assets of $800,000.
Fixed factory overhead cost
$82,000
Fixed selling and administrative costs
45,000
Variable direct materials cost per unit
5.50
Variable direct labor cost per unit
7.65
Variable factory overhead cost per unit
2.25
Variable selling and administrative cost per unit
.90
The unit selling price for the company’s product is:
101. Dotterel Corporation uses the variable cost concept of product pricing. Below is cost information for the
production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to a 11.2% rate of return
on invested assets of $350,000.
Fixed factory overhead cost
$105,000
Fixed selling and administrative costs
35,000
Variable direct materials cost per unit
4.34
Variable direct labor cost per unit
5.18
Variable factory overhead cost per unit
.98
Variable selling and administrative cost per unit
.70
The dollar amount of desired profit from the production and sale of the company’s product is:
102. Dotterel Corporation uses the variable cost concept of product pricing. Below is cost information for the
production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to a 11.2% rate of return
on invested assets of $350,000.
Fixed factory overhead cost
$105,000
Fixed selling and administrative costs
35,000
Variable direct materials cost per unit
4.34
Variable direct labor cost per unit
5.18
Variable factory overhead cost per unit
.98
Variable selling and administrative cost per unit
.70
The variable cost per unit for the production and sale of the company’s product is:
103. Dotterel Corporation uses the variable cost concept of product pricing. Below is cost information for the
production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to a 11.2% rate of return
on invested assets of $350,000.
Fixed factory overhead cost
$105,000
Fixed selling and administrative costs
35,000
Variable direct materials cost per unit
4.34
Variable direct labor cost per unit
5.18
Variable factory overhead cost per unit
.98
Variable selling and administrative cost per unit
.70
The markup percentage for the sale of the company’s product is:
104. Dotterel Corporation uses the variable cost concept of product pricing. Below is cost information for the
production and sale of 35,000 units of its sole product. Dotterel desires a profit equal to a 11.2% rate of return
on invested assets of $350,000.
Fixed factory overhead cost
$105,000
Fixed selling and administrative costs
35,000
Variable direct materials cost per unit
4.34
Variable direct labor cost per unit
5.18
Variable factory overhead cost per unit
.98
Variable selling and administrative cost per unit
.70
The unit selling price for the company’s product is:
105. What pricing concept considers the price that other providers charge for the same product?
106. What pricing concept is used if all costs are considered and a fair mark-up is added to determine the selling
price?
107. Which equation better describes Target Costing?
108. The Swan Company produces their product at a total cost of $43 per unit. Of this amount $8 per unit is
selling and administrative costs. The total variable cost is $30 per unit The desired profit is $20 per unit.
Determine the mark up percentage on product cost.
109. The Swan Company produces their product at a total cost of $43 per unit. Of this amount $8 per unit is
selling and administrative costs. The total variable cost is $30 per unit The desired profit is $20 per unit.
Determine the mark up percentage on variable cost.
110. The Swan Company produces their product at a total cost of $43 per unit. Of this amount $8 per unit is
selling and administrative costs. The total variable cost is $30 per unit The desired profit is $20 per unit.
Determine the mark up percentage on total cost.
111. Target costing is arrived at by
112. Paint Company manufactures Paint X and Paint Y and can sell all it can make of either. Based on the
following data, assuming the number of hours is a constraint, which statement is true,?
X
Y
Sales Price
$32
$40
Variable Cost
22
24
Hours needed to process
5
8
113. Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling prices are: $55; $78; and
$32, respectively. The variable costs for each product are: $20; $50; and $15, respectively. Each product must
go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to
process, Tales take 7 hours, and Wales take 1 hour.
Which product has the highest contribution margin per machine hour?
114. Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling prices are: $55; $78; and
$32, respectively. The variable costs for each product are: $20; $50; and $15, respectively. Each product must
go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to
process, Tales take 7 hours, and Wales take 1 hour.
What is the contribution margin per machine hour for Bales?
115. Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling prices are: $55; $78; and
$32, respectively. The variable costs for each product are: $20; $50; and $15, respectively. Each product must
go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to
process, Tales take 7 hours, and Wales take 1 hour.
What is the contribution margin per machine hour for Tales?
116. Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling prices are: $55; $78; and
$32, respectively. The variable costs for each product are: $20; $50; and $15, respectively. Each product must
go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to
process, Tales take 7 hours, and Wales take 1 hour.
What is the contribution per machine hour for Wales?
117. Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling prices are: $55; $78; and
$32, respectively. The variable costs for each product are: $20; $50; and $15, respectively. Each product must
go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to
process, Tales take 7 hours, and Wales take 1 hour.
Assuming that Widgeon Co. can sell all of the products they can make, what is the maximum contribution
margin they can earn per month?
118. Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling prices are: $55; $78; and
$32, respectively. The variable costs for each product are: $20; $50; and $15, respectively. Each product must
go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to
process, Tales take 7 hours, and Wales take 1 hour.
Assume that Widgeon produced enough product with the highest contribution margin per unit to use 1,000
hours of machine time. Product demand does not warrant any more production of that product. What is the
maximum additional contribution margin that can be realized by utilizing the remaining 1,000 hours on the
product with the second highest contribution margin per hour?
119. Flyer Company sells a product in a competitive marketplace. Market analysis indicates that their product
would probably sell at $48 per unit. Flyer management desires a 12.5% profit margin on sales. Their current
full cost per unit for the product is $44 per unit.
What is the target cost of the company’s product?
120. Flyer Company sells a product in a competitive marketplace. Market analysis indicates that their product
would probably sell at $48 per unit. Flyer management desires a 12.5% profit margin on sales. Their current
full cost per unit for the product is $44 per unit.
What is the desired profit per unit?
121. If the company meets the new target cost number, how much will they have to cut costs per unit, if any?
122. If the company can not cut costs any lower than they already are what would the profit margin on sales be
if they meet the market selling price?
123. Miramar Industries manufactures two products, A and B. The manufacturing operation involves three
overhead activities – production setup, material handling, and general factory activities. Miramar uses activity-
based costing to allocate overhead to products. An activity analysis of the overhead revealed the following
estimated costs and activity bases for these activities:
Cost
Activity Base
$250,000
Number of setups
$150,000
Number of parts
$80,000
Number of direct labor hours
Each product’s total activity in each of the three areas are as follows:
Product A
Product B
Number of setups
100
300
Number of parts
40,000
20,000
Number of direct labor hours
8,000
12,000
What is the activity rate for Production Setup?
124. Miramar Industries manufactures two products, A and B. The manufacturing operation involves three
overhead activities – production setup, material handling, and general factory activities. Miramar uses activity-
based costing to allocate overhead to products. An activity analysis of the overhead revealed the following
estimated costs and activity bases for these activities:
Cost
Activity Base
$250,000
Number of setups
$150,000
Number of parts
$80,000
Number of direct labor hours
Each product’s total activity in each of the three areas are as follows:
Product A
Product B
Number of setups
100
300
Number of parts
40,000
20,000
Number of direct labor hours
8,000
12,000
What is the activity rate for Material Handling?
125. Miramar Industries manufactures two products, A and B. The manufacturing operation involves three
overhead activities – production setup, material handling, and general factory activities. Miramar uses activity-
based costing to allocate overhead to products. An activity analysis of the overhead revealed the following
estimated costs and activity bases for these activities:
Cost
Activity Base
$250,000
Number of setups
$150,000
Number of parts
$80,000
Number of direct labor hours
Each product’s total activity in each of the three areas are as follows:
Product A
Product B
Number of setups
100
300
Number of parts
40,000
20,000
Number of direct labor hours
8,000
12,000
What is the activity rate for General Overhead?
126. Miramar Industries manufactures two products, A and B. The manufacturing operation involves three
overhead activities – production setup, material handling, and general factory activities. Miramar uses activity-
based costing to allocate overhead to products. An activity analysis of the overhead revealed the following
estimated costs and activity bases for these activities:
Cost
Activity Base
$250,000
Number of setups
$150,000
Number of parts
$80,000
Number of direct labor hours
Each product’s total activity in each of the three areas are as follows:
Product A
Product B
Number of setups
100
300
Number of parts
40,000
20,000
Number of direct labor hours
8,000
12,000
What is the total overhead allocated to Product A using activity-based costing?
127. Miramar Industries manufactures two products, A and B. The manufacturing operation involves three
overhead activities – production setup, material handling, and general factory activities. Miramar uses activity-
based costing to allocate overhead to products. An activity analysis of the overhead revealed the following
estimated costs and activity bases for these activities:
Cost
Activity Base
$250,000
Number of setups
$150,000
Number of parts
$80,000
Number of direct labor hours
Each product’s total activity in each of the three areas are as follows:
Product A
Product B
Number of setups
100
300
Number of parts
40,000
20,000
Number of direct labor hours
8,000
12,000
What is the overhead allocated to Product B using activity-based costing?
128. Using the variable cost concept determine the mark-up per unit for 30,000 units using the following
data: Variable cost per unit $15.00, total fixed costs $90,000 and desired profit $150,000.
129. 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 and desired profit $150,000.
130. The Stewart Cake Factory owns a building for its operations. Stewart uses only half of the building and is
considering two options for the unused space. The Candy Store would like to purchase the half of the building
that is not being used for $550,000. A 7% commission would have to be paid at the time of purchase. Ice Cream
Delight 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 $9,000 of property taxes each year and $1,000 of yearly insurance on the property,
according to the proposed lease agreement.
Determine the differential income or loss from the lease alternative.
131. Crane Company Division B recorded sales of $360,000, variable cost of goods sold of $315,000, variable
selling expenses of $13,000, and fixed costs of $61,000, creating a loss from operations of $29,000. Determine
the differential income or loss from the sales of Division B. Should this division be discontinued?
132. Lockrite Security Company manufacturers home alarms. Currently it is manufacturing one of its
components at a total cost of $45 which includes fixed costs of $15 per unit. An outside provider of this
component has offered to sell them the component for $40. Provide a differential analysis of the outside
purchase proposal.
133. An oven with a book value of $67,000 has an estimated 5 year life. A proposal is offered to sell the oven
for $8,500 and replace it with a new oven costing $110,000. The new machine has a five year life with no
residual value. The new machine would reduce annual maintenance costs by $23,000. Provide a differential
analysis on the proposal to replace the machine.
134. An unfinished desk is produced for $36.00 and sold for $65.00. A finished desk can be sold for
$75.00. The additional processing cost to complete the finished desk is $5.95. Provide a differential analysis
for further processing.
135. Rachel Cake Factory normally sells their specialty cake for $22. An offer to buy 100 cakes for $19 per
cake was made by an organization hosting a national event in the city. The variable cost per cake is $11. A
special decoration per cake will add another $1 to the cost. Determine the differential income or loss per cake
from selling the cakes.
136. The Owl Company produces and sells Product X at a total cost of $35 per unit, of which $28 is product
cost and $7 is selling and administrative expenses. In addition, the total cost of $35 is made up of $24 variable
cost and $11 fixed cost. The desired profit is $6 per unit. Determine the mark up percentage on product cost.
137. Ptarmigan Company produces two products. Product A has a contribution margin of $20 and requires 4
machine hours. Product B has a contribution margin of $18 and requires 3 machine hours. Determine the most
profitable product assuming the machine hours are the constraint.
138. The Turtle Company has total estimated factory overhead for the year of $1,200,000, divided into four
activities: Fabrication, $600,000; Assembly, $240,000; Setup, $200,000; and Materials Handling $160,000.
Turtle manufactures two products: Boogie Boards and Surf Boards. The activity-base usage quantities for each
product by each activity are as follows:
Fabrication
Assembly
Setup
Materials Handling
Boogie Boards
10,000 dlh
30,000 dlh
60 setups
100 moves
Surf Boards
30,000
10,000
440
700
40,000 dlh
40,000 dlh
500 setups
800 moves
Each product is budgeted for 10,000 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.
Assembly
30,000 dlh
$6/dlh
180,000
10,000 dlh
$6/dlh
60,000
Setup
60 setups
$400/setup
24,000
440 setups
$400/setup
176,000
Materials Handling
100 moves
$200/move
20,000
700 moves
$200/move
140,000
Total
$374,000
$826,000
Product A
Product B
Contribution margin per unit
$20
$18
Contribution margin per bottleneck hour
$5
$6
Product B is the most profitable.
139. An employee of Morgan Corporation has found some partially completed units of Model X in a dusty
corner of the warehouse. A job ticket attached to the units indicates that a total of $750 in manufacturing costs
have been used to bring the materials to this point in the manufacturing process. The units can be sold in their
current condition for $275 to a scrap metal dealer. If Morgan spends $250 to complete the units, they could be
sold for $600.
Required: A. What should Morgan do? Why?
B. Identify the sunk cost, if any.
140. Olsen Company produces two products. Product A has a contribution margin of $30 and requires 10
machine hours. Product B has a contribution margin of $24 and requires 4 machine hours. Determine the most
profitable product assuming the machine hours are the constraint.
141. Jamison Company produces and sells Product X at a total cost of $25 per unit, of which $15 is product cost
and $10 is selling and administrative expenses. In addition, the total cost of $25 is made up of $14 variable
cost and $11 fixed cost. The desired profit is $5 per unit. Determine the mark up percentage on total cost.