Exam 7: Target Costing, Managing Activities and Managing Capacity

'Budgeted capacity utilisation' is the level of capacity that managers expect to be used for the current budget period,which is typically one year.

Cost-plus pricing starts with what customers are willing to pay,and then adds a desired profit.

Theoretical capacity allows time for regular machine maintenance.

Most of a product's life-cycle costs are locked in by decisions made during the ________ business function of the value chain.

Which of the following is FALSE regarding target costing?

________ capacity utilisation typically focuses on the expected capacity utilisation for the next year and can thus be more reliably estimated than normal capacity utilisation.

A firm using product life-cycle reporting will have a calendar-based focus for this report.

Locked-in costs have already been incurred.

Fixed manufacturing cost per unit will be the same no matter what capacity concept is used.

Which of the following is NOT associated with target costing?

Managers can use technical specifications to estimate ________ capacity,and a combination of technical specifications,engineering studies and human resource considerations (e.g.worker safety)to obtain a reliable estimate of practical capacity for the budget period.

By highlighting the cost of capacity available but not used,the management accountant directs attention to it and to the need for actions that can be taken to reduce it.

What can an understanding of life-cycle costs lead to?

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 are the estimated life-cycle revenues?

Reverse engineering has the objective of reducing costs while still satisfying customer needs.

Capacity cost issues are prominent in many service-sector companies,even though these companies carry no inventory and so have no inventory costing problems.

Life-cycle budgeting estimates the costs and revenues attributed to a product from its initial R&D through production of a prototype product.

Concerns about target costing include all the following EXCEPT:

Designed-in or (locked-in)costs are costs that have not yet been incurred but will be incurred in the future (and cannot be avoided)because they are dictated by the design of the output.

________ is based on the demand for the output of the plant.