Question 1

The Australian Taxation Office (ATO)requires the use of ________ for calculating fixed manufacturing costs per unit.

Accepted Answer

A) practical capacity 
B) theoretical capacity 
C) normal capacity utilisation 
D) budgeted capacity utilisation 
A) practical capacity 
B) theoretical capacity 
C) normal capacity utilisation 
D) budgeted capacity utilisation

Question 2

When actual production is below practical capacity,there is unused capacity in the distribution function but not in the manufacturing function.

Accepted Answer

A) True 
 B)False

Question 3

The product life-cycle spans the time period from initial R&D on a product to the point at which the seller no longer offers customer service and support for that product.

Accepted Answer

A) True 
 B)False

Question 4

The two basic approaches for pricing are: competition-based and cost-based pricing.

Accepted Answer

A) True 
 B)False

Question 5

Wallace's Wrench Company manufactures socket wrenches.
∙ For next month,the vice CEO of production plans on producing 4400 wrenches per day.
∙ The company can produce as many as 5000 wrenches per day,but is more likely to produce 4500 per day.
∙ The demand for wrenches for the next three years is expected to average 4250 wrenches per day.
∙ Fixed manufacturing costs per month total $336 600.
∙ The company works 20 days a month.
∙ Fixed manufacturing overhead is charged on a per-wrench basis.
Required:
a.What is the theoretical fixed manufacturing overhead rate per wrench?
b.What is the practical fixed manufacturing overhead rate per wrench?
c.What is the normal fixed manufacturing overhead rate per wrench?
d.What is the budgeted fixed manufacturing overhead rate per wrench?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

a.Theoretical fixed manufacturing overhe

Question 6

Target pricing is a form of cost-based pricing.

Accepted Answer

A) True 
 B)False

Question 7

Costing systems recognise uncertainty the same way managers recognise it.

Accepted Answer

A) True 
 B)False

Question 8

Both theoretical and practical capacity measure capacity in terms of demand for the output.

Accepted Answer

A) True 
 B)False

Question 9

Whether managers adopt theoretical capacity as an aspirational goal or not,they recognise that,in practice,operating interruptions (such as scheduled maintenance time,shutdowns for holidays and so on)are unavoidable.

Accepted Answer

A) True 
 B)False

Question 10

Fixed costs are relevant for short-run pricing decisions because they cannot be changed.

Accepted Answer

A) True 
 B)False

Question 11

Life-cycle budgeting is particularly important when non-production costs are significant.

Accepted Answer

A) True 
 B)False

Question 12

Answer the following questions using the information below:
Cycle Safety company is able to produce 1000 safety helmets per hour,at maximum efficiency.There are three eight-hour shifts each day.Due to unavoidable operating interruptions,production averages 850 units per hour.The plant actually operates only 27 days per month.
-What is the theoretical capacity for the month of April?

Accepted Answer

A) 240 000 units 
B) 720 000 units 
C) 518 400 units 
D) 1 000 000 units 
A) 240 000 units 
B) 720 000 units 
C) 518 400 units 
D) 1 000 000 units

Question 13

Hobart Boating Supplies currently sells motor boats for $16 000.It has costs of $13 000.A competitor is bringing a new motor boat to the market that will sell for $15 500.Management believes it must lower the price to $15 500 to compete in the market for motor boats.Marketing believes that the new price will cause sales to increase by 12.5%,even with a new competitor in the market.Hobart Boating Supplies' sales are currently 2000 motor boats per year.
Required:
a.What is the target cost if target operating profit is 25% of sales?
b.What is the change in operating profit if marketing is correct and only the sales price is changed?
c.What is the target cost if the company wants to maintain its same profit level,and marketing is correct?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

a.$15 500 - ($15 500 × 0.25)= $11 625
b.

Question 14

The ________ price is the basis for calculating target cost per unit.

Accepted Answer

A) market 
B) hybrid 
C) selling 
D) target 
A) market 
B) hybrid 
C) selling 
D) target

Question 15

Customers are sometimes willing to pay for non-value-added costs.

Accepted Answer

A) True 
 B)False

The Australian Taxation Office (ATO)requires the use of ________ for calculating fixed manufacturing costs per unit.

When actual production is below practical capacity,there is unused capacity in the distribution function but not in the manufacturing function.

The product life-cycle spans the time period from initial R&D on a product to the point at which the seller no longer offers customer service and support for that product.

The two basic approaches for pricing are: competition-based and cost-based pricing.

Target pricing is a form of cost-based pricing.

Costing systems recognise uncertainty the same way managers recognise it.

Both theoretical and practical capacity measure capacity in terms of demand for the output.

Whether managers adopt theoretical capacity as an aspirational goal or not,they recognise that,in practice,operating interruptions (such as scheduled maintenance time,shutdowns for holidays and so on)are unavoidable.

Fixed costs are relevant for short-run pricing decisions because they cannot be changed.

Life-cycle budgeting is particularly important when non-production costs are significant.

The ________ price is the basis for calculating target cost per unit.

Customers are sometimes willing to pay for non-value-added costs.

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing and Multinational Considerations

Performance Measurement, Compensation and Multinational Considerations

Measuring and Reporting Sustainability

Filters

Exam 7: Target Costing, Managing Activities and Managing Capacity

The Australian Taxation Office (ATO)requires the use of ________ for calculating fixed manufacturing costs per unit.

When actual production is below practical capacity,there is unused capacity in the distribution function but not in the manufacturing function.

The product life-cycle spans the time period from initial R&D on a product to the point at which the seller no longer offers customer service and support for that product.

The two basic approaches for pricing are: competition-based and cost-based pricing.

Target pricing is a form of cost-based pricing.

Costing systems recognise uncertainty the same way managers recognise it.

Both theoretical and practical capacity measure capacity in terms of demand for the output.

Whether managers adopt theoretical capacity as an aspirational goal or not,they recognise that,in practice,operating interruptions (such as scheduled maintenance time,shutdowns for holidays and so on)are unavoidable.

Fixed costs are relevant for short-run pricing decisions because they cannot be changed.

Life-cycle budgeting is particularly important when non-production costs are significant.

The ________ price is the basis for calculating target cost per unit.

Customers are sometimes willing to pay for non-value-added costs.

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing and Multinational Considerations

Performance Measurement, Compensation and Multinational Considerations

Measuring and Reporting Sustainability

Filters