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

Which of the following is a method of reducing cost by identifying parts in different products that are common and interchangeable?

Ken Yalters,the COO of FreshSkin,asked his cost management team for a product line profitability analysis for his firm's two products - Askin and Bskin.The two products are skin care products that require a large amount of research and development and advertising.He received the report below.Ken concluded that Askin was the more profitable product,and that perhaps cost-cutting measures should be applied to the Bskin product. Seventy-five percent of the research and development and selling expenses were traceable to Askin. Profit before taxes for the Bskin product,per life-cycle income statements,is:

DualShaft Inc.manufactures a wide variety of parts for recreational boating,including boat engines.The component is purchased by OEM (original equipment manufacturers)such as Mercury and Honda,for use in the larger and more powerful outboards.The units sell for $790,and sales volume averages 38,000 units per year.Recently,DualShaft's major competitor lowered the price of the equivalent part to $710.The market was very competitive,and DualShaft realized it had to meet the new price or lose significant market share.The controller assembled the following data for the most recent year. Cost and Usage for Production of 38,000 Units:

Quality Industries manufactures large workbenches for industrial use.Yewell Hartnet,the Vice President for marketing at Quality Industries,concluded from market analysis that sales were dwindling for Standards' workbenches due to aggressive pricing by competitors.Quality's workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060.Yewell determined that a price drop to $1,060 would be necessary to retain market share and annual sales of 13,000 tables. Cost data based on sales of 13,000 tables: If the profit per unit is maintained,the target cost per unit is:

Electronic Component Company is a producer of high-end video and music equipment.ECC currently sells its top of the line "ECC" DVD player for a price of $250.It costs ECC $210 to make the player.ECC's main competitor is coming to market with a new DVD player that will sell for a price of $220.ECC feels that it must reduce its price to $220 in order to compete.The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%.ECC currently sells 200,000 DVD players per year. Assuming sales and marketing are not correct in their estimation and the volume of sales is not changed and ECC meets the competitive price,what is the target cost if ECC wants to maintain its same income level?

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: LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220.Manufacturing costs and activity usage for the two products are as follows: The product cost for model F-32 is:

The sequence of phases in the product or service's life in the market - from the introduction of the product or service to the growth in sales and finally maturity,decline,and withdrawal from the market is the:

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: LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220.Manufacturing costs and activity usage for the two products are as follows: The profit margin based on manufacturing cost for model F-32 is:

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. If Johnson determines price using a 20% markup of life cycle cost,the price is:

AirTravel Inc.manufactures a wide variety of parts for commercial aircraft,including airplane engines.The component is purchased by OEM (original equipment manufacturers)such as Boeing,for use in the larger and more powerful outboards.The units sell for $10,000,and sales volume averages 2,000 units per year.Recently,AirTravel's major competitor lowered the price of the equivalent part to $9,500.The market was very competitive,and AirTravel realized it had to meet the new price or lose significant market share.The controller assembled the following data for the most recent year: Cost and Usage for Production of 2,000 Units:

Pat Baldwin owns and operates Outstanding Quality Rentals (OQR).OQR offers kayak rentals and shuttle service on the Petaholee River.Customers can rent kayaks at one station and enter the river there.They can then exit at one of two designated locations to catch a shuttle to return them to their vehicles.Following are the costs involved in providing this service each year.

When comparing Activity-based costing (ABC)and the Theory of Constraints (TOC),the approach each method takes toward profitability analysis is:

During the sales life cycle,which is an example of what happens during the introduction phase?

Which of the following is a common form of value engineering in which the design team prepares several possible designs of the product,each having similar features with different levels of performance and different costs?

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. If Johnson determines price using a desired return on life cycle costs of 30%,the price is:

The theory of constraints (TOC)approach is strategically important in dynamic markets because it leads to:

The goals of coordinating manufacturing processes,thereby reducing the amount of inventory and improving overall productivity,is particularly important in a:

The theory of constraints (TOC)emphasizes which of the following?

Bryan Inc.produces a specialty top-quality juice machine.The product,the JM50,requires four processes to be completed.Specifically,these processes are exterior construction,pulp filter insertion,painting,and packaging.Each process is performed at separate workstations with different completion rates: Exterior construction can manufacture 100,000 juicer exteriors per day. Pulp filter insertion can install 25,000 filters every 6 hours. Painting can decorate 3,000 juicers every half hour. Packaging can package 5,000 juicers per hour. The plant operates 24/7,24 hours a day every day of the week. How many JM50 machines can Bryan Inc.manufacture per month (assume an average 30 day month)?

PureSwing Golf,Inc.manufactures swing analyzer systems for golf instructors.Two of its systems,Pure1000 and the Pure5000 have these characteristics: