CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Ex. 25–12 (Concluded)
c. The price of Decaf Columbian would need to decrease to $11.50 per pound
in order for the differential analysis to yield neither an advantage nor a
disadvantage (indifference). This is determined as follows:
The price of Decaf Columbian would need to be $0.38 lower, or $11.50, to
yield no net differential income or loss. This is verified by the following
differential analysis:
Sell Differential
Regular Effect
Columbian on Income
(Alternative 1) (Alternative 2)
Revenues $55,320 $10,230
(Alternative 2)
Decaf Columbian
$65,550
Further into
Process
October 6, 2014
Differential Analysis
Sell Regular Columbian (Alt. 1) or Process Further into Decaf Columbian (Alt. 2)
*
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Ex. 25–13
Differential
Reject Accept Effect
Order Order on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues $0 $576,000 $576,000
Costs:
b. The additional units can be sold for $32 each, and since unused capacity is
available, the only costs that would be added if this additional production
Ex. 25–14
Total costs………………………………………………………………………………
…
$375,000
…
Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
November 12, 2014
1
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Ex. 25–15
a.
Differential
Reject Accept Effect
Order Order on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues $0 $1,840,000 $1,840,000
Costs:
Direct materials 0 –760,000 –760,000
120,000 tires × $92 per tire
220,000 tires × $38 per tire
Goodman should accept the special order from Euro Motors.
Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
January 21, 2014
1
2
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Ex. 25–16
a. Desired profit = $200,000 × 15% = $30,000
Ex. 25–17
a. Desired profit = $1,200,000 × 30% = $360,000
Desired Profit +
Desired Profit +
c. Markup Percentage = Total Selling and Administrative Expenses
Total Manufacturing Costs
c. Total Selling and Administrative Expenses
Total Manufacturing Costs
Markup Percentage =
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Ex. 25–18
a. The price will be set at the estimated market price required to remain
competitive, or $28,000. Under the target cost concept, the market dictates
the price, not the markup on cost.
b. The required profit margin of 20% of the estimated $28,000 price implies a
$22,400 target product cost as follows:
Target Product Cost = $28,000 – ($28,000 × 20%)
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Ex. 25–19
$460 – $230
$230
a.
Historical markup percentage on product cost: = 100%
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Ex. 25–20
Determine the contribution margin per furnace hour as follows:
*Calculated as follows:
Type 5 Type 10 Type 20
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Ex. 25–21
a. Large Medium Small Total
Units produced………………………
…
3,000 3,000 3,000
Revenues………………………………
…
$552,000 $480,000 $300,000 $1,332,000
…
…
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Ex. 25–22
Activity Activity
Activity Cost Cost
Fabrication 1,680 mh /mh 1,070 mh /mh
Stationary Bicycle
Activity-
Base
Usage
Activity Base
Usage
Treadmill
×= ×=Rate
Activity
Rate
Activity-
$22
$36,960
$22 $23,540
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Ex. 25–23
Production Quality
a. Setup Procurement Control
Activity cost…
…
$44,000 $13,500 $97,500
b.
Number of setups…………………
…
290 110
× Rate per setup……………………
…
$110 $110
…
…
…
c. The factory overhead allocated to each product on the basis of direct labor hours
would be 50%, since each product has the same 2,000 direct labor hours. The
factory overhead per direct labor hour for each product is computed as follows:
d. The factory overhead allocated to the custom power unit is much higher under the
activity-based approach, compared to the direct labor method. The reason is that
the setup, procurement, and quality control activities are not related to the number
Materials
Management
$84,000
Custom Standard
…
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Ex. 25–24
a.
Activity
Casting mh /mh
b.
Activity
Activity Cost
Casting 800 mh /mh 600 mh /mh
Assembly 500 dlh /dlh 400 dlh /dlh
$30
1,400
Base Usage
Estimated
Activity
Cost
Total
Activity-
÷
Base Activity
Entry Lighting Fixtures Dining Room Lighting Fixtures
Activity- Activity-
Usage × Rate =
$30 $24,000 $30 $18,000
$15 7,500 $15 6,000
$42,000
Activity
Rate=
Activity
Usage × Rate =
Base Activity
Cost
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Appendix Ex. 25–25
a. Total costs:
Desired Profit
Total Costs
c. Cost amount per unit………………………………………………………………
…
$289
…
Appendix Ex. 25–26
a. Total variable costs:
(
$240 × 10,000 units
)
……………………………………
…
$2,400,000
c. Cost amount per unit………………………………………………………………
…
$240
…
b.
b. Markup percentage =
Markup percentage =
Desired Profit + Total Fixed Costs
Total Costs
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Prob. 25–1A
1.
Operate Differential
Retail Invest in Effect
Store Bonds on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues $1,264,000 $172,800 –$1,091,200
2. The proposal to operate the retail store should be rejected.
3. Total estimated revenue from operating store…………
…
$1,264,000
…
Differential Analysis
Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2)
October 1, 2014
PROBLEMS
12
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Prob. 25–2A
1.
Continue Replace Differential
with Old Old Effect
Machine Machine on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues
2. Other factors to be considered include:
a. Are there any improvements in the quality of work turned out by the new
machine?
b. What effect does the federal income tax have on the decision?
c. What opportunities are available for the use of the $84,200 of funds ($111,000 less
$26,800 proceeds from the old machine) that are required to purchase the new
machine?
Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
April 30, 2014
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Prob. 25–3A
1.
Differential
Promote Promote Effect
Moisturizer Perfume on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues $1,152,000 $1,040,000 –$112,000
Costs:*
Direct materials –192,000 –260,000 –68,000
Essence of Esther should promote moisturizer.
2. The sales manager’s tentative decision should be opposed. The sales manager
erroneously considered the full unit costs instead of the differential (additional)
Differential Analysis
Promote Moisturizer (Alt. 1) or Promote Perfume (Alt. 2)
August 21, 2014
12
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Prob. 25–4A
1.
Process
Further into Differential
Sell Raw Refined Effect
Sugar Sugar on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues, per batch $58,800 $73,920 $15,120
Differential Analysis
Sell Raw Sugar (Alt. 1) or Process Further into Refined Sugar (Alt. 2)
March 24, 2014
12
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Prob. 25–5A
1. $225,000 ($1,500,000 × 15%)
2. a. Total manufacturing costs:
V
ariable ($200* × 5,000 units)…………………………………………………
…
$1,000,000
b. Markup Percentage =
Total Selling and Administrative Expenses
Desired Profit +
Total Manufacturing Costs
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Prob. 25–5A (Continued)
3. (Appendix)
a. Total costs:
Desired Profit
Total Costs
4. (Appendix)
a. Variable cost amount per unit: $235
Desired Profit + Total Fixed Costs
Total Variable Costs
b.
b. Markup Percentage =
Markup Percentage =
CHAPTER 25 Differential Analysis, Product Pricing, and Activity-Based Costing
Prob. 25–5A (Concluded)
6. a.
Differential
Reject Accept Effect
Order Order on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues $0 $180,000 $180,000
Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
August 3, 2014