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Exam 13: Differential Analysis: the Key to Decision Making

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Question 131

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Bruce Corporation makes four products in a single facility. These products have the following unit product costs: Additional data concerning these products are listed below. The grinding machines are potentially the constraint in the production facility. A total of 9,000 minutes are available per month on these machines.Direct labor is a variable cost in this company.Which product makes the LEAST profitable use of the grinding machines? (Round your intermediate calculations to 2 decimal places.) r

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

E) None of the above
F) C) and D)

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Question 132

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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?

A) $105,000
B) $(23,000)
C) $128,000
D) $(116,500)

E) A) and C)
F) A) and D)

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Question 133

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Twisdale Corporation manufactures numerous products, one of which is called Omicron-52. The company has provided the following data about this product: Management is considering decreasing the price of Omicron-52 by 4%, from $42.00 to $40.32. The company's marketing managers estimate that this price reduction would increase unit sales by 5%, from 160,000 units to 168,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Omicron 52 earn at a price of $40.32 if this sales forecast is correct?

Bertucci Corporation makes three products that use the current constraint which is a particular type of machine. Data concerning those products appear below: Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? (Round your intermediate calculations to 2 decimal places.)

Inscho Corporation manufactures numerous products, one of which is called Delta10. 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 Delta10 would Inscho need to sell at a price of $90.95 to earn the same net operating income that it currently earns at a price of $85.00? (Round your answer up to the nearest whole number.)

Weakly Industrial Products Incorporated has developed a new industrial instrument, model CT-60, that is designed to offer superior performance to a comparable instrument sold by Weakly's main competitor. The competing instrument sells for $22,000 and needs to be replaced after 1,000 hours of use. It also requires $4,000 of preventive maintenance during its useful life. Model CT-60's performance capabilities are similar to the competing instrument with two important exceptions-it needs to be replaced only after 2,000 hours of use and it requires $6,000 of preventive maintenance during its useful life. Required: From a value-based pricing standpoint: a. What is the reference value that Weakly should consider when pricing model CT-60? b. What is the differentiation value offered by model CT-60 relative to the competitor's instrument for each 2,000 hours of usage? c. What is model CT-60's economic value to the customer over its 2,000 hour life? d. What range of possible prices should Weakly consider when setting a price for model CT-60?

Bowen Company produces products P, Q, and R from a joint production process. Each product may be sold at the split-off point or be processed further. Joint production costs of $81,000 per year are allocated to the products based on the relative number of units produced. Data for Bowen's operations for the current year are as follows: Product P can be processed beyond the split-off point for an additional cost of $10,000 and can then be sold for $50,000. Product Q can be processed beyond the split-off point for an additional cost of $35,000 and can then be sold for $65,000. Product R can be processed beyond the split-off point for an additional cost of $6,000 and can then be sold for $25,000.Required:Which products should be processed beyond the split-off point?

Morice Industries Incorporated has developed a new injection mold, model IA-05, that is designed to offer superior performance to a comparable injection mold sold by Morice's main competitor. The competing injection mold sells for $54,000 and needs to be replaced after 1,000 hours of use. It also requires $7,000 of preventive maintenance during its useful life. Model IA-05's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 2,000 hours of use and it requires $8,000 of preventive maintenance during its useful life.From a value-based pricing standpoint what is the reference value that Morice should consider when pricing model IA-05?

Herrell Corporation manufactures numerous products, one of which is called Delta11. The company has provided the following data about this product: Management is considering increasing the price of Delta11 by 5%, from $29.00 to $30.45. The company's marketing managers estimate that this price hike would decrease unit sales by 10%, from 110,000 units to 99,000 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Delta11 earn at a price of $30.45 if this sales forecast is correct?

Conaghan Avionics Corporation has developed a new high pressure pump-model RA-79-that has been designed to outperform a competitor's best-selling high pressure pump. The competitor's product has a useful life of 30,000 hours of service, has operating costs that average $3.60 per hour, and sells for $159,000. In contrast, model RA-79 has a useful life of 60,000 hours of service and its operating cost is $2.00 per hour. Conaghan has not yet established a selling price for model RA-79. From a value-based pricing standpoint what is RA-79's economic value to the customer over its 60,000 hour useful life?

The term joint cost is used to describe the costs incurred up to the split-off point in a process involving joint products.

Vanik Corporation currently has two divisions which had the following operating results for last year: Because the Rubber Division sustained a loss, the president of Vanik is considering the elimination of this division. All of the division's traceable fixed costs could be avoided if the division was dropped. None of the allocated common corporate fixed costs could be avoided. If the Rubber Division was dropped at the beginning of last year, the financial advantage (disadvantage) to the company for the year would have been:

Fabri Corporation is considering eliminating a department that has an annual contribution margin of $30,000 and $70,000 in annual fixed costs. Of the fixed costs, $12,000 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be:

Avoidable costs are irrelevant costs in decisions.

All other things equal including costs, if customers are more sensitive to price for one product than another, then to maximize profit the first product should have a higher price.

Acri Corporation manufactures numerous products, one of which is called Omicron09. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. If Acri decreases the price of Omicron09 to $71.76, what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $78.00? (Your answer should be rounded to the nearest 0.1%.)

Future costs that do differ among the alternatives are not relevant in a decision.

It may be a good decision to replace an asset before its original cost has been fully recovered through increased revenues or decreased costs.

Tavis Robotics Corporation has developed a new robot-model FI-73-that has been designed to out perform a competitor's best-selling robot. The competitor's product has a useful life of 10,000 hours of service, has operating costs that average $4.60 per hour, and sells for $109,000. In contrast, model FI-73 has a useful life of 30,000 hours of service and its operating cost is $2.60 per hour. Tavis has not yet established a selling price for model FI-73.From a value-based pricing standpoint what is the reference value that Tavis should consider when pricing model FI-73?

Attal Corporation manufactures numerous products, one of which is called Epsilon05. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. If Attal increases the price of Epsilon05 to $75.60, what percentage change in unit sales would provide the same net operating income as is currently being earned at a price of $72.00? (Your answer should be rounded to the nearest 0.1%.)