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Exam 13: Differential Analysis: the Key to Decision Making

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Question 141

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Cables Electronics Corporation has developed a new instrument-model XG-75-that has been designed to outperform a competitor's best-selling instrument. Model XG-75 has a useful life of 40,000 hours of service and its operating cost is $2.80 per hour. In contrast, the competitor's product has a useful life of 20,000 hours of service and has operating costs that average $5.00 per hour. The competitor's instrument sells for $169,000. Cables has not yet established a selling price for model XG-75. From a value-based pricing standpoint what is the reference value that Cables should consider when pricing model XG-75?

A) $269,000
B) $281,000
C) $338,000
D) $169,000

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Question 142

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Cranston Corporation makes four products in a single facility. Data concerning these products appear below: The milling machines are potentially the constraint in the production facility. A total of 28,200 minutes are available per month on these machines.Which product makes the MOST profitable use of the milling machines? (Round your intermediate calculations to 2 decimal places.)

A) Product A
B) Product B
C) Product C
D) Product D

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Question 143

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Demand for a product is said to be elastic if a change in price has little effect on the number of units sold.

The Wyeth Corporation produces three products, A, B, and C, from a single raw material input. Product A can be sold at the splitoff point for $40,000, or it can be processed further at a total cost of $15,000 and then sold for $58,000. Joint costs total $60,000 annually. Product A should be:

Key Corporation is considering the addition of a new product. The expected cost and revenue data for the new product are as follows: If the new product is added, the combined contribution margin of the other, existing products is expected to drop $65,000 per year. Total common fixed corporate costs would be unaffected by the decision of whether to add the new product.If the new product is added next year, the financial advantage (disadvantage) resulting from this decision would be:

Kirgan, Inc., manufactures a product with the following costs: The company uses the absorption costing approach to cost-plus pricing described in the text. The pricing calculations are based on budgeted production and sales of 57,000 units per year.The company has invested $140,000 in this product and expects a return on investment of 13%.The selling price based on the absorption costing approach would be closest to:

Milford Corporation has in stock 16,100 kilograms of material R that it bought five years ago for $5.75 per kilogram. This raw material was purchased to use in a product line that has been discontinued. Material R can be sold as is for scrap for $3.91 per kilogram. An alternative would be to use material R in one of the company's current products, S88Y, which currently requires 2 kilograms of a raw material that is available for $7.60 per kilogram. Material R can be modified at a cost of $0.77 per kilogram so that it can be used as a substitute for this material in the production of product S88Y. However, after modification, 4 kilograms of material R is required for every unit of product S88Y that is produced. Milford Corporation has now received a request from a company that could use material R in its production process. Assuming that Milford Corporation could use all of its stock of material R to make product S88Y or the company could sell all of its stock of the material at the current scrap price of $3.91 per kilogram, what is the minimum acceptable selling price of material R to the company that could use material R in its own production process? (Round your intermediate calculations to 2 decimal places.)

The management of Furrow Corporation is considering dropping product L07E. Data from the company's budget for the upcoming year appear below: In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $239,000 of the fixed manufacturing expenses and $200,000 of the fixed selling and administrative expenses are avoidable if product L07E is discontinued. The financial advantage (disadvantage) for the company of eliminating this product for the upcoming year would be:

The management of Bonga Corporation is considering dropping product D74F. Data from the company's accounting system for this product for last year appear below: All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $210,000 of the fixed manufacturing expenses and $121,000 of the fixed selling and administrative expenses are avoidable if product D74F is discontinued.What would be the financial advantage (disadvantage) from dropping product D74F?

Cranston Corporation makes four products in a single facility. Data concerning these products appear below: The milling machines are potentially the constraint in the production facility. A total of 28,200 minutes are available per month on these machines.Which product makes the LEAST profitable use of the milling machines? (Round your intermediate calculations to 2 decimal places.)

Ouzts Corporation is considering Alternative A and Alternative B. Costs associated with the alternatives are listed below: What is the financial advantage (disadvantage) of Alternative B over Alternative A?

The management of Giammarino Corporation is considering introducing a new product--a compact barbecue. At a selling price of $78 per unit, management projects sales of 10,000 units. Launching the barbecue as a new product would require an investment of $100,000. The desired return on investment is 11%. The target cost per barbecue is closest to:

Schickel Incorporated regularly uses material B39U and currently has in stock 457 liters of the material for which it paid $2,619 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $5.21 per liter. New stocks of the material can be purchased on the open market for $5.81 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 700 liters of the material to be used in a job for a customer. The relevant cost of the 700 liters of material B39U is:

Twisdale Corporation manufactures numerous products, one of which is called Omicron-52. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. How many units of product Omicron-52 would Twisdale need to sell at a price of $40.32 to earn the same net operating income that it currently earns at a price of $42.00? (Round your answer up to the nearest whole number.)

Younes Incorporated manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as P06. Data concerning this product are given below: The above per unit data are based on annual production of 4,000 units of the component. Assume that direct labor is a variable cost.What is the current contribution margin per unit for component P06 based on its selling price of $220 and its annual production of 4,000 units?

Alway Candy Corporation is implementing a target costing approach for its latest new product, the "Big Glob" candy bar. The following information relates to the Big Glob: Based on this information, what is Alway's target selling price per bar for the Big Glob?

The Cook Corporation has two divisions--East and West. The divisions have the following revenues and expenses: The management of Cook is considering the elimination of the West Division. If the West Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company net operating income (loss) of:

The management of Wengel Corporation is considering dropping product B90D. Data from the company's accounting system appear below: All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $177,000 of the fixed manufacturing expenses and $153,400 of the fixed selling and administrative expenses are avoidable if product B90D is discontinued.Required:What would be the financial advantage (disadvantage) of dropping B90D? Should the product be dropped?

Benjamin Company produces products C, J, and R from a joint production process. Each product may be sold at the split-off point or processed further. Joint production costs of $95,000 per year are allocated to the products based on the relative number of units produced. Data for Benjamin's operations for last year follow: Required: Which products should be processed beyond the split-off point?

When a company is involved in more than one activity in the entire value chain, it is vertically integrated.