Exam 7: Target Costing, Managing Activities and Managing Capacity

________ is a systematic evaluation of all aspects of the value chain,with the objective of reducing costs and achieving a quality level that satisfies customers.

Answer the following questions using the information below: Waugh,Chapple,Border and Associates is in the process of evaluating its new client services for the business consulting division. ∙ Estate planning,a new service,incurred $600 000 in development costs and employee training. ∙ The direct costs of providing this service,which is all labour,averages $100 per hour. ∙ Other costs for this service are estimated at $2 000 000 per year. ∙ The current program for estate planning is expected to last for two years.At that time,a new law will be in place that will require new operating guidelines for the tax consulting. ∙ Customer service expenses average $400 per client,with each job lasting an average of 400 hours.The current staff expects to bill 40 000 hours for each of the two years the program is in effect.Billing averages $140 per hour. -What is the estimated life-cycle operating profit for the first two years?

Which of the following is the budgeted fixed manufacturing cost rate the lowest for?

In target costing,what are at least two techniques used to achieve target-costing goals? _____________________________________________________________________________________________ _____________________________________________________________________________________________

If a company chooses practical capacity for planning purposes,it must also use practical capacity for performance evaluation.

________ costing tracks and accumulates business function costs of the value chain attributable to each product from initial R&D to final customer service and support.

'Theoretical capacity' is most often used to cost a product.

Rework is an example of a value-added cost.

How does using budgeted capacity utilisation for setting prices lead to a downward demand spiral? _____________________________________________________________________________________________ _____________________________________________________________________________________________

In business and accounting,'capacity' usually implies a constraint or an upper limit,which is not easily lifted,at least in the short run.

The department usually in the best position to identify customers' needs is the:

What is the term used for the continuing reduction in the demand for a company's products that occurs when it fails to meet or better competitors' prices?

Answer the following questions using the information below: Snowy River Transformers is in the process of evaluating a new product using the following information: ∙ A new transformer has two production runs each year,each with $10 000 in set-up costs. ∙ The new transformer incurred $30 000 in development costs and is expected to be produced over the next three years. ∙ Direct costs of producing the transformers are $40 000 per run of 5000 transformers. ∙ Indirect manufacturing costs charged to each run are $45 000. ∙ Destination charges for each transformer average $1.00. ∙ Customer service expenses average $0.20 per transformer. ∙ The transformers are selling for $25 the first year and will increase by $3 each year thereafter. ∙ Sales units equal production units each year. -What is the estimated life-cycle operating profit for the first year?

Linguistics Inc.provides materials that let people teach themselves to speak Mandarin.It has six different skill-level programs.Each one includes visual and audio learning aids along with a workbook that can be submitted to the company for grading and evaluation purposes,if the person so desires. The accounting system of Linguistics Inc.is very traditional in its reporting functions with the calendar year being the company's fiscal year.It includes an abundance of information that can be used for various reporting purposes. The company has found that any new idea soon runs its course with an effective life of about three years.Therefore,the company is always in the development stage of some new program.Program development requires experts in the area to provide the know-how of the item being developed and a development team that puts together the video,audio and workbook materials.The actual costs of reproducing the packages are relatively inexpensive when compared to the development costs. Required: How might product life-cycle budgeting aid the company in improving its overall operations? _____________________________________________________________________________________________ _____________________________________________________________________________________________

________ capacity represents an ideal goal,which some managers may wish to set as an aspirational goal.

Which of the following can be included in cross-functional engineering teams?

Should a company with high fixed costs and unused capacity raise selling prices to try to fully recoup its costs? _____________________________________________________________________________________________ _____________________________________________________________________________________________

It is always clear which activities add value and which do not add value to a product.

Life-cycle budgeting:

Value engineering can reduce all of the following EXCEPT: