Question 1

Soap Company manufactures Soap X and Soap Y and can sell all it can make of either.Hours available to produce the products is 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?

Accepted Answer

Reducing the processing time for X by 10% would increase the number of units that can be produced per hour, resulting in a higher contribution margin per hour.

Question 2

What is a bottleneck?

Accepted Answer

A bottleneck is a point in the production process where the progress is limited due to a constraint or a bottleneck. This could be a physical location, such as a narrow area in the plant layout, or a resource constraint, such as the availability of skilled labor or equipment. As a result, the production process slows down, and the output is lower than what it could have been if the bottleneck were not present. Therefore, option A is the right choice. Option B refers to the lean manufacturing strategy of just-in-time (JIT), which focuses on reducing waste and inventory levels. Option C and D do not accurately define what a bottleneck is.

Question 3

Managers who often make special pricing decisions are more likely to use which of the following cost concepts in their work?

Accepted Answer

Managers who make special pricing decisions are likely to consider the variable cost, which is the cost that varies proportionally with the level of production or sales. This allows them to determine the minimum price at which they can sell their product/service without incurring losses. The total cost (A) and fixed cost (D) may not be as relevant in this decision-making process, and the product cost (B) may include both fixed and variable costs, which may not provide managers with a precise estimate for pricing decisions.

Question 4

What cost concept used in applying the cost-plus approach to product pricing includes total manufacturing costs and total selling and administrative expenses in the "cost" amount to which the markup is added?

Accepted Answer

The total cost concept includes all costs incurred in manufacturing and selling the product, including both manufacturing costs and selling and administrative expenses. This concept ensures that all costs related to the product are taken into account when determining the selling price, which can help ensure profitability.

Question 5

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

Accepted Answer

The answer of Refer to the information provided for Apope...

Question 6

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 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.

Accepted Answer

The answer of Pull Company is considering the disposal of...

Question 7

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:

Accepted Answer

The answer of Tidewater Company uses the product cost concept...

Question 8

Wyandott Co.produces two products.Both products pass through a firing process that is operating at full capacity and is a production bottleneck.Product A requires 2 hours of processing and has a contribution margin per unit of $60.Product B requires 1 hour of processing and has a contribution margin of $40.Which of the following provides the most accurate assessment of the situation assuming unlimited demand for each product?

Accepted Answer

Product B generates a higher contribution margin per hour ($40 per hour) compared to Product A ($30 per hour, calculated as $60/2 hours), making it more profitable to produce given the bottleneck constraint.

Question 9

Quick Company has been purchasing a component,Part Q,for $20 a unit.Quick 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,determined by absorption costing method,is estimated as follows:

Accepted Answer

The answer of Quick Company has been purchasing a component,Part...

Question 10

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

Accepted Answer

The answer of Refer to the information provided for Apope...

Question 11

Defense contractors would be more likely to use which of the following cost concepts in pricing their product?

Accepted Answer

The answer of Defense contractors would be more likely to...

Question 12

Soap Company manufactures Soap X and Soap Y and can sell all it can make of either.Hours available to produce the products is the constrained resources.Based on the following data,which statement is true?

Accepted Answer

The answer of Soap Company manufactures Soap X and Soap...

Question 13

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,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.

Accepted Answer

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

Question 14

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 shown below:

Accepted Answer

The answer of Brickman's Pharmacy sells a variety of products.The...

Question 15

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

Accepted Answer

According to the information provided, the total cost of production is $930,000 and the company aims to make a profit of 12.9% on sales. Therefore, the desired profit would be 12.9% of the total revenue, which can be calculated as:
Desired profit = 12.9% of (Total cost of production + Desired profit)
$120,000 = 12.9% of ($930,000 + Desired profit)
$120,000 = 0.129($930,000 + Desired profit)
$120,000 = $119,970 + 0.129 Desired profit
0.129 Desired profit = $30
Desired profit = $30/0.129
Desired profit = $232,558.14
Therefore, the dollar amount of desired profit is $232,558.14, which is closest to option C ($120,000).

Question 16

What cost concept used in applying the cost-plus approach to product pricing includes only total manufacturing costs in the "cost" amount to which the markup is added?

Accepted Answer

The product cost concept includes only the total manufacturing costs in the "cost" amount to which the markup is added. This means that only the actual costs incurred in producing the product are included, such as direct labor, direct materials, and manufacturing overhead. Other cost concepts, such as the variable cost concept or total cost concept, may include additional costs beyond just manufacturing costs. The opportunity cost concept refers to the cost of forgoing the next best alternative, and is not directly related to product pricing under the cost-plus approach.

Question 17

In contrast to the total product and variable cost concepts used in setting selling prices,the target cost approach assumes that:

Accepted Answer

The target cost approach is based on the market price. It starts with the selling price that the market can bear and then subtracts the desired profit to determine the target cost. This approach contrasts with methods that add a markup to various cost components.

Question 18

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:

Accepted Answer

The answer of Jarvis Company uses the total cost concept...

Question 19

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.

Accepted Answer

The answer of FDE Manufacturing Company has a normal plant...

Question 20

In attempting to improve profitability when faced with a bottleneck related to hours that is involved in the production of two or more products,which of the following is most important for management to consider?

Accepted Answer

When facing a bottleneck related to hours, it is important for management to consider the contribution margin per bottleneck hour for each product. This will help them determine which product is most profitable to produce given the limited resources available. The time required for each product passing through the bottleneck and the selling price or sales revenue generated by each product are also important factors to consider, but the contribution margin per bottleneck hour is the most crucial. A high contribution margin per bottleneck hour means a product is more profitable to produce because it generates more revenue per hour of bottleneck time.

Quiz 12: Differential Analysis and Product Pricing