Question 1

In using the total cost concept of applying the cost-plus approach to product pricing,what is included in the markup?

Accepted Answer

The answer of In using the total cost concept of...

Question 2

Alia Co.can further process Product X to produce Product Y.Product X is currently selling for $20 per pound and costs $15 per pound to produce.Product Y would sell for $30 per pound and would require an additional cost of $8 per pound to produce.What is the differential cost of producing Product Y?

Accepted Answer

The differential cost of producing Product Y is the additional cost required to convert Product X into Product Y, which is $8 per pound. This does not include the cost of producing Product X, only the extra cost to upgrade it to Product Y.

Question 3

A business is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $15 per unit.The unit cost for the business to make the part is $20,including fixed costs,and $12,not including fixed costs.If 30,000 units of the part are normally purchased during the year but could be manufactured using unused capacity,what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?

Accepted Answer

The answer of A business is operating at 90% of...

Question 4

Refer to the information provided for Bythel Corporation.The markup percentage for the company's product is:

Accepted Answer

To find the markup percentage, we need to use the formula:
markup percentage = (selling price - cost price)/cost price * 100
From the information given, we know that the company's cost of producing a product is $3.50 and its selling price is $4.38. Plugging these values into the formula:
markup percentage = (4.38 - 3.50)/3.50 * 100 = 25.14%
Rounding to one decimal place, we get 25.4%. Therefore, the answer is B.

Question 5

Granger Co.can further process Product B to produce Product C.Product B is currently selling for $55 per pound and costs $42 per pound to produce.Product C would sell for $82 per pound and would require an additional cost of $13 per pound to produce.What is the differential revenue of producing and selling Product C?

Accepted Answer

The differential revenue of producing and selling Product C is calculated by subtracting the selling price of Product B from the selling price of Product C: $82 (selling price of C) - $55 (selling price of B) = $27 per pound.

Question 6

In using the total cost concept of applying the cost-plus approach to product pricing,what is included in the cost amount to which the markup is added?

Accepted Answer

The total cost concept used in cost-plus pricing includes the total costs of manufacturing a product plus selling and administrative expenses. It does not include fixed costs or variable costs, but rather all costs directly related to producing and selling the product. The desired profit is then added to this amount to determine the final selling price.

Question 7

A business is considering a cash outlay of $500,000 for the purchase of land,which it could lease for $40,000 per year.If alternative investments are available that yield a 21% return,the opportunity cost of the purchase of the land is:

Accepted Answer

The opportunity cost is the return foregone by not investing in the alternative option. If the business can earn a 21% return on alternative investments, the opportunity cost of investing $500,000 in the land instead is 21% of $500,000, which is $105,000.

Question 8

In which of the following pricing methods is the markup added to manufacturing cots and selling and expenses to determine the selling price?

Accepted Answer

The Total cost method includes not only the direct manufacturing cost but also includes the selling and administrative expenses. The markup is added to the total costs to determine the selling price. Therefore, A) Total cost method is the best choice for this question.

Question 9

is a method of setting prices that combines market-based pricing with a cost-reduction emphasis.

Accepted Answer

Target costing is a method of setting prices that considers both market-based pricing and cost reduction. It starts with the price that the customer is willing to pay, and then the desired profit margin is subtracted to arrive at the maximum cost allowed for the product. This cost target becomes the focus of the design and manufacturing process, with an emphasis on cost reduction through efficiency improvements, supplier negotiations and product simplification to meet the targeted cost while maintaining quality and customer value.

Question 10

Target costing is arrived at by:

Accepted Answer

The answer of Target costing is arrived at by:
...

Question 11

What pricing method is most likely to be used if there are several providers in the same market and there is sufficient demand for the product?

Accepted Answer

In a market with multiple providers and sufficient demand, the competition-based method is the most appropriate pricing method. This method involves pricing a product based on the prices set by competitors. It allows companies to remain competitive in the market while also ensuring that they are able to make a profit.

Question 12

Refer to the information provided for Bythel Corporation.The dollar amount of desired profit from the production and sale of the company's product is:

Accepted Answer

Desired profit = Total expenses - Total costs - Accumulated depreciation 
Desired profit = $300,000 - ($100,000 + $72,000) - $30,800 
Desired profit = $97,200

Question 13

Which equation better describes target costing?

Accepted Answer

Target costing is a process of determining the maximum cost that can be incurred on a product so that it can be sold at a required profit margin. Hence, the equation that better describes target costing is Selling Price - Desired Profit = Target Costs.

Question 14

A practical approach that is frequently used by managers when setting normal selling price is the:

Accepted Answer

The cost-plus approach is a common and practical method used by managers to set a normal selling price. It involves adding a markup to the cost of producing or acquiring a product or service. This approach ensures that the company covers its costs and makes a profit. While the other approaches may also be used in setting prices, they may not be as practical or widely used as the cost-plus approach.

Question 15

Sanchez Company is considering replacing equipment that originally cost $300,000 and has $280,000 accumulated depreciation to date.A new machine will cost $450,000.What is the sunk cost in this situation?

Accepted Answer

The answer of Sanchez Company is considering replacing equipment that...

Question 16

Refer to the information provided for Bythel Corporation.The unit selling price for the company's product is:

Accepted Answer

The unit selling price is calculated by dividing total sales revenue by the number of units sold. The correct choice is based on the given data.

Question 17

In using the variable cost concept of applying the cost-plus approach to product pricing,what is included in the markup?

Accepted Answer

The answer of In using the variable cost concept of...

Question 18

Target cost is computed by:

Accepted Answer

Target cost is the expected cost of a product that will enable the company to achieve its desired profit when the product is sold at its expected selling price. Therefore, the target cost is computed by subtracting the desired profit from the expected selling price. The formula for calculating the target cost is as follows: Target Cost = Expected Selling Price - Desired Profit.

Question 19

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:

Accepted Answer

To determine the best choice, we need to calculate the total cost and revenue involved in the offer. The cost of the 10,000 units at $13.50 per unit is $135,000. However, since the offer will not affect normal production or domestic sales prices, we can assume that there are no additional costs involved.

Let's look at the revenue side. We don't know the selling price of the product, so let's assume it's $15 per unit, which is a reasonable markup from the cost of $13.50 per unit. The revenue from selling 10,000 units at $15 per unit is $150,000.

Now, we need to compare the revenue and cost to determine the best choice:

Revenue - cost = $150,000 - $135,000 = $15,000

Since the result is a positive number, we have a gain. Therefore, option C ($15,000 gain) is the best choice.

Question 20

The condensed income statement for a business for the past year is as follows:

Accepted Answer

The answer of The condensed income statement for a business...

Quiz 12: Differential Analysis and Product Pricing