Explore BrainMass

Differential Analysis and Product: cost concepts

Please see attach document.

1. A cost that will not be affected by later decisions is termed a(n) ________.
historical cost
differential cost
sunk cost
replacement cost

2. Jones 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 $60 per pound and would require an additional cost of $24 per pound to produce. What is the differential cost of producing Product C?
$30 per pound
$24 per pound
$28 per pound
$60 per pound

3. A business 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 which yield a 21% return, the opportunity cost of the purchase of the land is ________.

4. Franklin and Johnson, CPAs, currently work a five-day week. They estimate that net income for the firm would increase by $45,000 annually if they worked an additional day each month. The cost associated with the decision to continue the practice of a five-day work week is an example of ________.
differential revenue
sunk cost
differential income
opportunity cost

5. Carnival Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine originally cost $5,000 and has been fully depreciated. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 and annual operating costs would be $1,500. Both machines have an estimated useful life of 5 years.
Stay with the old equipment $3,500 less in net costs
Purchase the new equipment $3,500 cost savings
Purchase the new equipment - deduction in costs $14,500
Stay with the old equipment - cost savings of $2,000

6. 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?
Variable cost concept
Total cost concept
Product cost concept
Opportunity cost concept