Chapter 25: Differential analysis, Product Pricing, And Activity-based Costing

Question 1

What is the definition of differential analysis?

Answer 1

Analyzes differential revenues and costs in order to determine the differential impact on profit and income of two alternative courses of action.

Question 2

The differential analysis is prepared in….

Answer 2

3 columns, where positive amounts indicate the effect is to increase income and negative amounts indicate the effect is to decrease income

Question 3

When deciding between leasing or selling in a differential analysis, what is included and what is not included?

Answer 3

Only differential revenues and costs associated directly with the lease or sell decision are included; the book value is not included

Question 4

Usually this eliminates all of the product’s or segments variable costs

Answer 4

Discontinuing a segment or Product

Question 5

Discontinuing a segment or product fixed costs…

Answer 5

Are not eliminated

Question 6

In processing or selling differential analysis …

Answer 6

Costs of producing the intermediate product do not change

Question 7

Normal Selling Price

Answer 7

The target selling price to be achieved in the long term

Question 8

PRODUCT COST CONCEPT : Normal Selling Price =

Answer 8

Cost amount per Unit * Markup

Question 9

Under the PRODUCT COST CONCEPT, only the costs….

Answer 9

Of manufacturing the product are included in the cost amount per unit to which the markup is added. Selling & admin expenses + desired profit are included in the markup

Question 10

PRODUCT COST CONCEPT normal selling price is calculated by these steps

Answer 10

Step 1. Estimate the total product costs by adding product costs
Step 2. Estimate the total selling and administrative expenses
Step 3. Product coots per unit = total product cost / Estimated units produced and sold
Step 4. Markup percentage = desired profit + selling and administrative expenses / total product cost (desired profit= desired rate of return * total assets)
Step 5. Markup per unit = markup percentage * product cost per unit
Step 6. Normal Selling price = product cost per unit + markup per unit

Question 11

Target cost =

Answer 11

Expected Selling Price - Desired Profit

Question 12

Companies should attempt to…

Answer 12

Maximize profits when they have a bottleneck production process

Question 13

Used when allocating factory overhead when there are diverse products and processes

Answer 13

ABC Method (Activity-Based Costing)

Question 14

In ABC Costing, activity rates are found by the equation

Answer 14

Estimated Activity Cost / Estimated Activity-Base Usage

Question 15

How is TOTAL COST CONCEPT different than the PRODUCT COST CONCEPT?

Answer 15

Total cost concept includes selling and admin. Expenses into total cost per unit

Question 16

What are the steps for finding normal selling price using Total Cost Concept?

Answer 16

Step 1. Estimate the total manufacturing costs by adding costs
Step 2. Estimate the total selling and administrative expenses
Step 3. Estimate total cost by adding Step 1 and Step 2
Step 4. Total costs per unit = total cost / Estimated units produced and sold
Step 5. Markup percentage = desired profit / total cost (desired profit= desired rate of return * total assets)
Step 6. Markup per unit = markup percentage * total cost per unit
Step 7. Normal Selling price = total cost per unit + markup per unit

Question 17

Fixed manufacturing costs, fixed selling and administrative expenses, and desired profit are included in markup price in this.

Answer 17

Variable Cost Concept

Question 18

Normal Selling Price is found in VARIABLE COST CONCEPT by these steps:

Answer 18

Step 1. Estimate the total variable costs by adding variable costs
Step 2. Estimate the total variable selling and administrative expenses
Step 3. Total variable cost = total variable product cost + total variable selling and administrative expenses
Step 4. Variable costs per unit = total variable cost / Estimated units produced and sold
Step 5. Markup percentage = desired profit + total fixed costs and expenses / total variable cost (desired profit= desired rate of return * total assets)
Step 6. Markup per unit = markup percentage * variable cost per unit
Step 7. Normal Selling price = variable cost per unit + markup per unit