Exam 13: Cost Planning for the Product Life Cycle: Target Costing, Theory of Constraints, and Strategic Pricing

Life Cycle Costing Income Statements The following revenue and cost data are for Turner Manufacturing's two radial saws. The L40 is for the commercial market and the L50 is for industrial customers. Both products are expected to have three-year life cycles. Required: 1. How would a product life-cycle income statement differ from the above income statements? 2. Prepare a three-year life-cycle income statement for both products. Which product appears to be more profitable and why? 3. Prepare a schedule showing each cost category as a percentage of total annual costs. What do you think this indicates about the profitability of each product over the three-year life cycle?

When a firm determines the desired cost for a product or service, given a competitive market price, in order to earn a desired profit, the firm is exercising:

Which one of the following is true concerning the theory of constraints (TOC)?

Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to determine the price of its product. Total Costs Variable Manufacturing \ 2,350,000 Variable Selling and Administrative 750,000 Plant-level Fixed Overhead 1,200,000 Fixed Selling and Administrative 600,000 Batch-level Fixed Overhead 200,000 Total Investment in Product Line 10,000,000 Expected Sales (units) 20,000 If Johnson determines price using a desired gross margin percentage of 50%, the price is:

Reduced time-to-market, reduced expected service cost, and ease-of-manufacture are critical success factors at which stage of the cost life cycle?

________ is an important first step in value engineering because it identifies critical consumer preferences that will define the product's desired functionality.

Which one of the following is not one of the five steps in theory of constraints (TOC) analysis?

Which of the following are computer-based databases that include comprehensive information about the firm's cost drivers?

Bell Company produces and sells three products (A, B, C).The following data relate to the three products.Management considers labor to be a fixed cost. A B C Demand in units 120 110 100 Selling price per unit \ 100 \ 120 \ 105 Raw material cost/unit \ 50 \ 60 \ 60 Labor time in minutes/unit 12 17 7 Required: 1.Calculate the contribution per labor minute for each product. 2.Determine the best product mix.Assume there are five employees, and given time for breaks, training, and regular meetings, there are a total of 2,200 minutes available per day.

During which stage of the sales life cycle of a product do sales continue to increase but at a decreasing rate, and competition tends to focus on cost?

Activity-based costing (ABC) and the theory of constraints (TOC) are viewed as methods that are:

David Corporation manufactures a single product that has a cost of $250. The company uses a 60% markup on manufacturing cost to arrive at a selling price of $400, which results in a price that is higher than that of the leading competitors. If David adopts the approach known as target costing, the company will first:

Quality Chairs Inc. (QC) manufactures chairs for industrial use. Laura Winters, the Vice President for Marketing at QC, concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for $550 whereas the competition's comparable chair was selling for $495. Winters determined that a price drop to $495 would be necessary to regain market share and reach a targeted annual sales level of 10,000 chairs. Cost data based on sales of 10,000 chairs: Budgeted Actual Quantity Quantity Direct materials (board feet) 88,000 79,500 \ 1,250,000 Direct labor (hours) 71,350 73,775 875,000 Machine hours (hours) 11,400 11,250 250,000 Finishing and packing (hours) 6,500 6,400 125,000 If the profit per unit is maintained, the target cost per unit is:

Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13). The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools: The product cost for model F-32 is: