Question

QUESTION 1

Victor's Detailing customers would be willing to pay $57 per detail. The company requires an 80% markup on each job. The average job would cost $30.

Victor's Detailing uses markup pricing to set the price on each job. What is the price Victor should quote a new customer?

	a.	$240
	b.	$24
	c.	$54
	d.	$84
	e.	$30

QUESTION 2

Information about three joint products follows:

	X	Y	Z
Anticipated production	12,000 lbs.	8,000 lbs.	7,000 lbs.
Selling price/lb. at split-off	$16	$26	$48
Additional processing costs/lb. after split-off
(all variable)	$8	$20	$20
Selling price/lb. after further processing	$20	$40	$70

The cost of the joint process is $140,000. Which of the joint products should be processed further?

	a.	X.
	b.	Y.
	c.	Z.
	d.	Both X and Y.

Answer 1

Q.1.

Ans. C ($54)

Explanation: Price = Cost + Markup

Cost = $ 30 and Markup = 80% on cost

Price = $30 + ($ 30 * 80%)

= $ 30 + $ 24

= $ 54

Q.2.

Ans: C. Z.

Decision about further processing of Products
Particulars/ Products	X	Y	Z
Selling Price after further processing	$ 20	$ 40	$ 70
Less: Selling Price at split off	$ 16	$ 26	$ 48
Incremental value	$ 4	$ 14	$ 22
Less: Further Processing Cost	$ 8	$ 20	$ 20
Profit / (loss) arising due to further processing (a)	($ 4)	($ 6)	$ 2
Units (b)	12,000	8,000	7,000
Increase/ (Decrease) in Operational Income (a*b)	($ 48,000)	($ 48000)	$ 14,000

It is advisable to process Z unit further.