Question 1

The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an alternative is
A)manufacturing margin
B)contribution margin
C)differential cost
D)differential revenue

Accepted Answer

Differential revenue is the amount of increase or decrease in revenue that can be expected from a particular course of action as compared with an alternative. It helps in decision-making by analyzing the potential impact of different alternatives on revenue. Therefore, option D is the best choice.

Question 2

The differential revenue of producing Product D is
A)$6.75 per pound
B)$22.25 per pound
C)$18.00 per pound
D)$6.25 per pound

Accepted Answer

The answer of The differential revenue of producing Product D...

Question 3

The condensed income statement for Hayden Corp. for the past year is as follows:  Management is considering the discontinuance of the manufacture and sale of Product T at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Product U. The amount of change in profit for the current year that will result from the discontinuance of Product T is a
A)$140,000 increase
B)$5,000 increase
C)$5,000 decrease
D)$140,000 decrease

Accepted Answer

The answer of The condensed income statement for Hayden Corp....

Question 4

Farris Company 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 15% return, the opportunity cost of the purchase of the land is
A)$75,000
B)$40,000
C)$44,000
D)$7,500

Accepted Answer

The opportunity cost is the return Farris Company is giving up by not investing the $500,000 at the 15% return rate, which is $500,000 * 15% = $75,000.

Question 5

Jarrett Company is considering a cash outlay of $300,000 for the purchase of land, which it could lease for $36,000 per year. If alternative investments are available that yield a 9% return, the opportunity cost of the purchase of the land is
A)$27,000
B)$36,000
C)$9,000
D)$72,000

Accepted Answer

The opportunity cost of purchasing the land is the return Jarrett Company would forgo by not investing the $300,000 in the alternative investments that yield a 9% return. Calculating 9% of $300,000 gives $27,000, which is the opportunity cost of the purchase.

Question 6

Delaney Company is considering replacing equipment that originally cost $600,000 and has accumulated depreciation of $420,000 to date. A new machine will cost $790,000 and the old equipment can be sold for $8,000. The sunk cost in this situation is
A)$172,000
B)$180,000
C)$188,000
D)$290,000

Accepted Answer

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

Question 7

A cost that has been incurred in the past, cannot be recouped, and is not relevant to future decisions is termed a
A)period cost
B)differential cost
C)sunk cost
D)replacement cost

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered, making them irrelevant to future decision-making processes.

Question 8

The desired selling price for a product will be the same under both the variable and total cost methods.

Accepted Answer

The desired selling price is determined by market factors and is not affected by the cost method used.

Question 9

The total cost method includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.

Accepted Answer

The total cost method considers all costs, including manufacturing, selling, and administrative expenses, to determine the base cost before adding a markup for pricing.

Question 10

The amount of increase or decrease in cost that is expected from a particular course of action as compared with an alternative is
A)period cost
B)product cost
C)differential cost
D)discretionary cost

Accepted Answer

The amount of increase or decrease in cost that is expected from a particular course of action as compared with an alternative is called differential cost. Differential cost is important in decision-making as it helps to determine the best course of action by comparing the costs of different alternatives. Period cost refers to cost that is not directly related to the production of goods, such as administrative expenses. Product cost includes direct materials, direct labor, and manufacturing overhead. Discretionary cost refers to expenses that a company chooses to incur, such as a charitable donation.

Question 11

The condensed income statement for a Fletcher Inc. for the past year is as follows:  Management is considering the discontinuance of the manufacture and sale of Product G at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Products F and H. The amount of change in profit for the current year that will result from the discontinuance of Product G is a
A)$20,000 increase
B)$30,000 increase
C)$20,000 decrease
D)$30,000 decrease

Accepted Answer

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

Question 12

The differential cost of producing Product D is
A)$6.50 per pound
B)$8.55 per pound
C)$17.00 per pound
D)$5.25 per pound

Accepted Answer

The answer of The differential cost of producing Product D...

Question 13

Yasmin Co. can further process Product B to produce Product C. Product B is currently selling for $30 per pound and costs $28 per pound to produce. Product C would sell for $55 per pound and would require an additional cost of $31 per pound to produce. The differential cost of producing Product C is
A)$30 per pound
B)$31 per pound
C)$28 per pound
D)$55 per pound

Accepted Answer

The differential cost of producing Product C from Product B is the additional cost required to produce Product C from Product B, which is $31 per pound. This does not include the cost already incurred to produce Product B, only the additional cost to upgrade it to Product C.

Question 14

Grace Co. can further process Product B to produce Product C. Product B is currently selling for $60 per pound and costs $38 per pound to produce. Product C would sell for $95 per pound and would require an additional cost of $13 per pound to produce. The differential revenue of producing and selling Product C is
A)$35 per pound
B)$38 per pound
C)$95 per pound
D)$60 per pound

Accepted Answer

The differential revenue of producing and selling Product C compared to Product B is the difference in selling prices, which is $95 (selling price of C) - $60 (selling price of B) = $35 per pound.

Question 15

Lara Technologies is considering a total cash outlay of $250,000 for the purchase of land, which it could lease for $35,000 per year. If alternative investments are available that yield a 12% return, the opportunity cost of the purchase of the land is
A)$35,000
B)$30,000
C)$250,000
D)$4,200

Accepted Answer

The opportunity cost is the return foregone by not investing the $250,000 at the alternative rate of 12%. Therefore, the opportunity cost is 12% of $250,000, which equals $30,000.

Question 16

Sage Company 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 $11, not including fixed costs. If 30,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, the amount of differential cost increase or decrease from making the part rather than purchasing it would be a
A)$150,000 cost increase
B)$120,000 cost decrease
C)$150,000 cost decrease
D)$120,000 cost increase

Accepted Answer

The differential cost is the difference in variable costs between making and buying. Making the part costs $11 per unit in variable costs, while buying costs $15 per unit. The cost decrease is ($15 - $11) * 30,000 = $120,000.

Question 17

The revenue that is forgone from an alternative use of an asset, such as cash, is called
A)differential profit
B)sunk cost
C)differential revenue
D)opportunity cost

Accepted Answer

Opportunity cost refers to the benefit that is missed or given up when an investor, individual, or business chooses one alternative over another. It represents the potential gains from those alternative uses of resources, like cash, that are not pursued.

Question 18

Piper Corp. is operating at 70% of capacity and is currently purchasing a part used in its manufacturing operations for $24 per unit. The unit cost for the business to make the part is $36, including fixed costs, and $26, not including fixed costs. If 15,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, the amount of differential cost increase or decrease from making the part rather than purchasing it would be a
A)$30,000 cost decrease
B)$180,000 cost increase
C)$30,000 cost increase
D)$180,000 cost decrease

Accepted Answer

The differential cost increase from making the part rather than purchasing it is calculated by comparing the relevant costs of both options. The cost to purchase the part is $24 per unit, while the variable cost to make the part is $26 per unit (excluding fixed costs, which are not incremental in this decision since they exist regardless of the choice). For 15,000 units, the differential cost is ($26 - $24) * 15,000 = $30,000, representing an increase in costs if the parts are made in-house.

Question 19

Delaney Company is considering replacing equipment that originally cost $600,000 and has accumulated depreciation of $420,000 to date. A new machine will cost $790,000. The sunk cost in this situation is
A)$370,000
B)$790,000
C)$180,000
D)$190,000

Accepted Answer

Sunk costs are costs that have already been incurred and cannot be recovered. In this case, the original cost of the equipment ($600,000) minus the accumulated depreciation ($420,000) equals $180,000, which is the book value of the old equipment and represents the sunk cost.

Question 20

Under the variable cost method, only variable costs are included in the cost amount per unit to which the markup is added.

Accepted Answer

Under the variable cost method, only variable costs are considered in determining the cost per unit, and then a markup is added to these costs to set the selling price. Fixed costs are not included in the cost per unit calculation in this method.

Quiz 25: Differential Analysis and Product Pricing

The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an alternative is

The differential revenue of producing Product D is

Farris Company 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 15% return, the opportunity cost of the purchase of the land is

Jarrett Company is considering a cash outlay of $300,000 for the purchase of land, which it could lease for $36,000 per year. If alternative investments are available that yield a 9% return, the opportunity cost of the purchase of the land is

Delaney Company is considering replacing equipment that originally cost $600,000 and has accumulated depreciation of $420,000 to date. A new machine will cost $790,000 and the old equipment can be sold for $8,000. The sunk cost in this situation is

A cost that has been incurred in the past, cannot be recouped, and is not relevant to future decisions is termed a

The desired selling price for a product will be the same under both the variable and total cost methods.

The total cost method includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.

The amount of increase or decrease in cost that is expected from a particular course of action as compared with an alternative is

The differential cost of producing Product D is

Lara Technologies is considering a total cash outlay of $250,000 for the purchase of land, which it could lease for $35,000 per year. If alternative investments are available that yield a 12% return, the opportunity cost of the purchase of the land is

The revenue that is forgone from an alternative use of an asset, such as cash, is called

Delaney Company is considering replacing equipment that originally cost $600,000 and has accumulated depreciation of $420,000 to date. A new machine will cost $790,000. The sunk cost in this situation is

Under the variable cost method, only variable costs are included in the cost amount per unit to which the markup is added.