Question 1

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 five 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 five years.​
Should the machine be replaced? Prepare a differential analysis report to support your answer.

Accepted Answer

The answer of Gull Corp. is considering selling its old...

Question 2

Match each phrase that follows with the term (a-e) it describes.
-Revenue forgone from an alternative use of an asset
A)Opportunity cost
B)Sunk cost
C)Theory of constraints
D)Differential analysis
E)Product cost distortion

Accepted Answer

The definition given is that of opportunity cost, which is the cost of not choosing a certain alternative and instead choosing another alternative.

B) Sunk cost refers to costs that have already been incurred and cannot be recovered.

C) Theory of constraints is a management strategy that focuses on identifying and removing constraints that prevent a company from reaching its goals.

D) Differential analysis involves comparing the costs and benefits of two or more alternatives to determine the best course of action.

E) Product cost distortion occurs when the actual costs of producing a product are not accurately reflected in the product's cost.

Question 3

Match each phrase that follows with the term (a-e) it describes. Some terms may not be used and other terms may be used more than once.
-Includes manufacturing costs plus selling and administrative expenses in the total cost per unit before markup
A)Total cost method
B)Variable cost method
C)Normal selling price
D)Product cost method
E)Yield pricing

Accepted Answer

The answer of Match each phrase that follows with the...

Question 4

Match each phrase that follows with the term (a-e) it describes. Some terms may not be used and other terms may be used more than once.
-Fixed costs are included in the markup
A)Total cost method
B)Variable cost method
C)Normal selling price
D)Product cost method
E)Yield pricing

Accepted Answer

The answer of Match each phrase that follows with the...

Question 5

Match each word or phrase that follows with the term (a-e) it describes.
-Sets the price based on the price offered by competitors
A)Demand-based method
B)Competition-based method
C)Product cost method
D)Target costing method
E)Production bottleneck

Accepted Answer

The answer of Match each word or phrase that follows...

Question 6

Match each phrase that follows with the term (a-e) it describes. Some terms may not be used and other terms may be used more than once.
-= Cost Amount per Unit + Markup
A)Total cost method
B)Variable cost method
C)Normal selling price
D)Product cost method
E)Yield pricing

Accepted Answer

The answer of Match each phrase that follows with the...

Question 7

Oficina Bonita Company manufactures office furniture. 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. Should the company sell unfinished desks or process further and sell finished desks? Prepare a differential analysis to support your answer.

Accepted Answer

The answer of Oficina Bonita Company manufactures office furniture. An...

Question 8

Diamond Boot Factory normally sells its specialty boots for $375 a pair. An offer to buy 100 boots for $275 per pair was made by an organization hosting a national event in Norfolk. The variable cost per boot is $250, and special stitching will add another $20 per pair to the cost. Determine the differential income or loss per pair of boots from selling to the organization. Should Diamond Boot Factory accept or reject the special offer? Show computations, but a formal differential analysis report is not required.

Accepted Answer

The answer of Diamond Boot Factory normally sells its specialty...

Question 9

Finch, Inc., has purchased a new server and must decide what to do with the old one. The cost of the old server was originally $60,000 and has been depreciated $45,000. The company has received two offers. One offer was to lease the equipment for $7,000 for the next five years, but the company will be required to provide maintenance and insurance totaling $3,000 per year. The other offer was made to purchase the equipment outright for $18,500 less a 5% sales commission. Which offer should Finch, Inc., accept? Prepare a differential analysis report to support your answer.

Accepted Answer

The answer of Finch, Inc., has purchased a new server...

Question 10

Match each word or phrase that follows with the term (a-e) it describes.
-Only includes the costs of manufacturing in product cost per unit
A)Demand-based method
B)Competition-based method
C)Product cost method
D)Target costing method
E)Production bottleneck

Accepted Answer

This definition matches the product cost concept, which focuses on calculating the cost of manufacturing a product, including direct materials, direct labor, and manufacturing overhead.

Answer: D 
 This definition matches target costing, which involves setting a target cost for a product based on the price that customers are willing to pay, and then designing the product and its production process to meet that cost target.

Answer: B 
 This definition matches the competition-based concept, which involves setting prices based on what competitors are charging for similar products.

Answer: A 
 This definition matches the demand-based concept, which involves setting prices based on what customers are willing to pay for a product.

Answer: E 
 This definition matches the production bottleneck, which refers to a process or point in the production line where the production capacity is limited, resulting in reduced throughput and longer lead times.

Question 11

Match each phrase that follows with the term (a-e) it describes.
-Not relevant to future decisions
A)Opportunity cost
B)Sunk cost
C)Theory of constraints
D)Differential analysis
E)Product cost distortion

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered, making them not relevant to future decisions.

Question 12

Product J is one of the many products manufactured and sold by Oceanside Company. An income statement by product line for the past year indicated a net profit for Product J of $2,750. This net profit resulted from sales of $275,000, 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. 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.​
Should the company continue or discontinue producing Product J? Prepare a differential analysis report to support your answer.

Accepted Answer

The answer of Product J is one of the many...

Question 13

Match each phrase that follows with the term (a-e) it describes. Some terms may not be used and other terms may be used more than once.
-Target selling price to be achieved in the long term
A)Total cost method
B)Variable cost method
C)Normal selling price
D)Product cost method
E)Yield pricing

Accepted Answer

Normal selling price refers to the target selling price to be achieved in the long term. The other options are:
A) Engineering change order - a document used to request changes to a product's design or documentation
B) Total cost concept - a cost accounting method that takes into account all costs associated with a product or service
C) Variable cost concept - a cost accounting method that only looks at the variable costs associated with a product or service
E) Setup - the process of preparing a machine or tool for a production run.

Question 14

Match each word or phrase that follows with the term (a-e) it describes.
-Sets the price based on product demand
A)Demand-based method
B)Competition-based method
C)Product cost method
D)Target costing method
E)Production bottleneck

Accepted Answer

The answer of Match each word or phrase that follows...

Question 15

Match each phrase that follows with the term (a-e) it describes. Some terms may not be used and other terms may be used more than once.
-A common practice in many high-fixed-cost service businesses
A)Total cost method
B)Variable cost method
C)Normal selling price
D)Product cost method
E)Yield pricing

Accepted Answer

The answer of Match each phrase that follows with the...

Question 16

Match each phrase that follows with the term (a-e) it describes.
-Strategy that focuses on reducing the influence of bottlenecks
A)Opportunity cost
B)Sunk cost
C)Theory of constraints
D)Differential analysis
E)Product cost distortion

Accepted Answer

The answer of Match each phrase that follows with the...

Question 17

Match each phrase that follows with the term (a-e) it describes.
-Possible result of using an inappropriate overhead allocation method
A)Opportunity cost
B)Sunk cost
C)Theory of constraints
D)Differential analysis
E)Product cost distortion

Accepted Answer

Product cost distortion is the result of using an inappropriate overhead allocation method which can lead to inaccurate product costs. Choice A is the cost of forgoing the next best alternative and is not related to overhead allocation. Choice B refers to costs that have already been incurred and cannot be recovered, while Choices C and D are management accounting techniques and not terms related to the result of an inappropriate overhead allocation method.

Question 18

An employee of Morgan Corporation 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.
a. What should Morgan do? Why?
b. Identify the sunk cost, if any.

Accepted Answer

The answer of An employee of Morgan Corporation found some...

Question 19

Snipe Company has been purchasing a component, Part Q, for $19.20 per unit. Snipe is currently operating at 70% of capacity, and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part Q is estimated as follows:  Should the company make or buy the component? Prepare a differential analysis report dated March 12 of the current year to support your answer.

Accepted Answer

The answer of Snipe Company has been purchasing a component,...

Question 20

Match each phrase that follows with the term (a-e) it describes.
-Evaluation of how profit will change based on an alternative course of action
A)Opportunity cost
B)Sunk cost
C)Theory of constraints
D)Differential analysis
E)Product cost distortion

Accepted Answer

The answer of Match each phrase that follows with the...

Quiz 25: Differential Analysis and Product Pricing

Match each phrase that follows with the term (a-e) it describes. -Revenue forgone from an alternative use of an asset A)Opportunity cost B)Sunk cost C)Theory of constraints D)Differential analysis E)Product cost distortion

Match each phrase that follows with the term (a-e) it describes. Some terms may not be used and other terms may be used more than once. -Fixed costs are included in the markup A)Total cost method B)Variable cost method C)Normal selling price D)Product cost method E)Yield pricing

Match each word or phrase that follows with the term (a-e) it describes. -Sets the price based on the price offered by competitors A)Demand-based method B)Competition-based method C)Product cost method D)Target costing method E)Production bottleneck

Match each phrase that follows with the term (a-e) it describes. Some terms may not be used and other terms may be used more than once. -= Cost Amount per Unit + Markup A)Total cost method B)Variable cost method C)Normal selling price D)Product cost method E)Yield pricing

Match each word or phrase that follows with the term (a-e) it describes. -Only includes the costs of manufacturing in product cost per unit A)Demand-based method B)Competition-based method C)Product cost method D)Target costing method E)Production bottleneck

Match each phrase that follows with the term (a-e) it describes. -Not relevant to future decisions A)Opportunity cost B)Sunk cost C)Theory of constraints D)Differential analysis E)Product cost distortion

Match each phrase that follows with the term (a-e) it describes. Some terms may not be used and other terms may be used more than once. -Target selling price to be achieved in the long term A)Total cost method B)Variable cost method C)Normal selling price D)Product cost method E)Yield pricing

Match each word or phrase that follows with the term (a-e) it describes. -Sets the price based on product demand A)Demand-based method B)Competition-based method C)Product cost method D)Target costing method E)Production bottleneck

Match each phrase that follows with the term (a-e) it describes. -Strategy that focuses on reducing the influence of bottlenecks A)Opportunity cost B)Sunk cost C)Theory of constraints D)Differential analysis E)Product cost distortion

Match each phrase that follows with the term (a-e) it describes. -Possible result of using an inappropriate overhead allocation method A)Opportunity cost B)Sunk cost C)Theory of constraints D)Differential analysis E)Product cost distortion

Match each phrase that follows with the term (a-e) it describes. -Evaluation of how profit will change based on an alternative course of action A)Opportunity cost B)Sunk cost C)Theory of constraints D)Differential analysis E)Product cost distortion