Deck 6: Planning in the Product Domain

Question 1

Target costing is an integral part of a performance measurement system.

Answer 1

False

Question 2

The objective of target costing's pricing analysis is to establish a price for the product or service that will maximize its profit potential.

Answer 2

True

Question 3

The profit target set in target costing is intended to provide sufficient funds over the life of the product to allow the firm to recover its development and production costs and provide a reasonable return on its investment in the product.

Answer 3

True

Question 4

The target cost is the sum of the target price and the desired profit.

Question 5

The difference between the current estimated cost of the product and its target cost is referred to as the cost gap.

Question 6

Woodford Company has established a target price for a new product at $250. The company has determined that it must earn a desired profit of 30% on the product. The target cost for the product is $175.

Question 7

A job shop manufacturing setting features a continuous flow of homogenous units that are indistinguishable.

Question 8

All Tech Automotive uses a job order costing system to determine the cost of repair work completed for its customers. This system directly traces the cost of materials and direct labor to the specific repair jobs completed.

Question 9

All Tech Automotive uses a job order costing system to determine the cost of work completed for its customers. All Tech employs a single plant-wide overhead rate based on direct labor hours to apply overhead to individual repair jobs. For the current year, overhead is estimated to be $200,000 and direct labor hours are estimated to total 8,000. Tim Johnson's brake repair job required two direct labor hours to complete. All Tech will apply $50 of overhead to the Johnson repair job.

Question 10

A continuous flow process, manufacturing environment takes advantage of the efficiencies of assembly line production while still accommodating product variety.

Question 11

Committed costs are those that are "locked in" or determined by the design of the product and manufacturing process.

Question 12

As a job shop adds more products and activities to its manufacturing environment, the use of departmental overhead application rates will improve its decision making.

Question 13

In a process costing environment, the number of physical units of output completed in a given period is identical to the number of equivalent units of output attributed to that period.

Question 14

Equivalent unit computations are typically made for both raw material and conversion costs.

Question 15

Under the average method of process costing, costs from previous periods and the current period are combined into a single pool.

Question 16

The difference between the target price of a product and its target cost is:

A) The cost gap.
B) The desired profit.
C) The gross margin.
D) The estimated actual cost.

Question 17

Young Corporation is in the design phase for a voice-activated remote control for home electronic devices. Its market analysis indicates that the planned device can be sold at a price of $150 per unit. The company has determined that a 30% profit on the product will allow it to recover the costs of development and production, and provide an adequate return on capital. Under these circumstances, the target cost for the remote control is:

A) $105
B) $45
C) $60
D) The difference between $105 and the estimated actual cost of producing the product.

Question 18

International Chemicals, Inc., is in the design phase of a new additive that will improve the adhesion of exterior house paint. The market for such additives is extremely competitive and International has determined that its selling price cannot exceed $20 per unit. At this price, the company has determined that a cost gap of $8 per unit exists. To proceed from the design to the attainment phase for this additive, International Chemicals will:

A) Charge a price that exceeds the market price of competing products.
B) Redesign the product or its manufacturing process to reduce actual cost to the target cost for the product.
C) Abandon the product.
D) Reduce its target cost by $8 per unit.

Question 19

The Wingo Corporation estimates that it can successfully market a new water toy at a price of $40 per unit. Its analysis also indicates an estimated actual cost to produce the new toy of $36 per unit. At this point, a cost gap of $8 exists. What rate of profit does Wingo require for this product?

A) 50%
B) 25%
C) 30%
D) 20%

Question 20

Target cost is computed as follows:

A) Desired profit divided by estimated price.
B) Cost gap divided by price.
C) Estimated full cost less estimated price.
D) Estimated price less required profit.

Question 21

Acme Anvil Company is considering the introduction of a new product to its line of quality anvils. The company's engineering and manufacturing managers have concluded that there are no product design or manufacturing process changes that will allow the new product to be produced at a unit cost of less than $30. If Acme requires a profit of 40%, what price must the new product sell at to justify its introduction?

A) $50
B) $75
C) $42
D) $12

Question 22

Of the following tactical steps, which would most likely be used to eliminate a cost gap for a new product intended to be sold in a highly competitive market with numerous close substitutes?

A) Raise the estimated selling price.
B) Redesign the product to eliminate costly features that the potential customer does not value.
C) Accept a reduced rate of profit that will fail to recoup all of the design and production costs of the new product over its lifetime.
D) All of the above would be used to eliminate a cost gap.

Question 23

When conducting a target costing analysis, the estimated selling price of the new product will reflect:

A) The estimated actual cost to produce the product.
B) The desired rate of profit to be earned by the product.
C) The customers' perception of the product's value and market competition.
D) The company's cost of capital.

Question 24

Retro Autoparts, Inc., is a metalworking shop that manufactures exact replacement parts for vintage automobiles. All work is done on a special order basis. The business may best be described as:

A) Process manufacturing.
B) Cellular manufacturing.
C) A job shop.
D) A large batch manufacturer.

Question 25

Of the following products and services, which is manufactured or provided in a process/continuous flow setting?

A) Cruise ships.
B) Golf balls.
C) Computer file servers.
D) Financial audits.

Question 26

Directly tracing direct material and direct labor costs to a unit of output is relatively straightforward in which of the following manufacturing settings?

A) Job shop.
B) Process/continuous flow.
C) Cellular.
D) None of the above.

Question 27

The sum of direct material and direct labor costs traceable to a specific job or batch is termed:

A) Overhead.
B) Prime cost.
C) Conversion cost.
D) Committed cost.

Question 28

The 195 Factory, Inc., produces replacement parts for Cessna aircraft. The company employs a job order costing system with a plant-wide overhead rate based on direct labor hours. For the current year, estimated overhead is $800,000. The company employs five direct laborers, each of whom was expected to work 2,000 hours in the current year. The 195 Factory has just completed production of a replacement aileron assembly for Fortune Air Flying Club. This job required 12 hours of direct labor time to complete. What amount of overhead cost will be applied to the Fortune Air Flying Club job?

A) $960
B) $400
C) $80
D) Cannot be determined until actual overhead and actual labor hours for the year are known.

Question 29

The Caswell Company produces custom bookcases in a job shop organized into three departments: fabricating; assembly; and finishing. Overhead is applied to jobs using a plant-wide rate based on direct labor costs (dollars). Labor dollars is used as an application base because skill levels and wages of labor differ significantly across the three departments. For the coming year, Caswell's estimates of overhead costs and labor costs for each of the three departments are given in the table below:


- Compute the plant-wide overhead rate that Caswell will use to apply overhead to jobs in the coming year.

A) $208.54
B) 6.50
C) $211.00
D) 8.05

Question 30

The Caswell Company produces custom bookcases in a job shop organized into three departments: fabricating; assembly; and finishing. Overhead is applied to jobs using departmental rates based on direct labor costs (dollars). Labor dollars is used as an application base because skill levels and wages of labor differ significantly across the three departments. For the coming year, Caswell's estimates of overhead costs and labor costs for each of the three departments are given in the table below:


- Compute the overhead rate that Caswell will use to apply overhead to jobs in the fabricating department in the coming year.

A) 8.00
B) 6.50
C) $200.00
D) $208.54

Question 31

Joyce Company is a printing shop that offers products including brochures, advertising flyers, wedding invitations, etc. The company has accepted an order from Jane Anderson for wedding invitations. The job will require 200 sheets of card stock at $0.15 per sheet and $30 worth of various inks. The job will also require two hours of direct labor time at $15 per hour. Overhead is applied on the basis of direct labor using a plant-wide rate of $20 per hour.

-What is the prime cost of the wedding invitations ordered by Jane Anderson?

A) $90
B) $70
C) $130
D) $40

Question 32

Joyce Company is a printing shop that offers products including brochures, advertising flyers, wedding invitations, etc. The company has accepted an order from Jane Anderson for wedding invitations. The job will require 200 sheets of card stock at $0.15 per sheet and $30 worth of various inks. The job will also require two hours of direct labor time at $15 per hour. Overhead is applied on the basis of direct labor using a plant-wide rate of $20 per hour.

-What amount of overhead will be applied to the wedding invitations ordered by Jane Anderson?

A) $90
B) $70
C) $130
D) $40

Question 33

Joyce Company is a printing shop that offers products including brochures, advertising flyers, wedding invitations, etc. The company has accepted an order from Jane Anderson for wedding invitations. The job will require 200 sheets of card stock at $0.15 per sheet and $30 worth of various inks. The job will also require two hours of direct labor time at $15 per hour. Overhead is applied on the basis of direct labor using a plant-wide rate of $20 per hour.

-What is the total cost of the wedding invitations ordered by Jane Anderson?

A) $90
B) $70
C) $130
D) $40

Question 34

Baldwin Printing Company uses a job order costing system and applies overhead based on machine hours. A total of 150,000 machine hours have been budgeted for the year. During the year, an order for 1,000 units was completed and incurred the following.
The accountant calculated the cost of this order to be $4.30 per unit. The annual budgeted overhead in dollars was:

A) $577,500.
B) $600,000.
C) $645,000.
D) $660,000.

Question 35

John Sheng, cost accountant at Starlet Company, is developing departmental factory overhead application rates for the company's tooling and fabricating departments. The budgeted overhead for each department and the data for one job are shown below.
Using the departmental overhead application rates, total overhead applied to Job 231 in the tooling and fabricating departments will be:

A) $225.
B) $303.
C) $537.
D) $671.

Question 36

Martin & Haviland is a small CPA firm that employs four partners and 14 staff auditors. Budgeted annual salaries are $200,000 for each of the partners and $50,000 for each of the staff auditors. Budgeted overhead costs are $600,000. Overhead is applied to audits based on the total cost of partner and audit staff time charged to the audit. The company has recently completed its annual audit of Whitney Power Systems, Inc., which required $80,000 of partner cost and $70,000 of staff audit cost. What amount of overhead will be applied to this audit?

A) $60,000
B) $360,000
C) $4.00
D) $120,000

Question 37

The purpose of a process costing system can be best summarized as:

A) Tracing manufacturing costs to a specific batch of units.
B) Assigning appropriate portions of total manufacturing costs to completed units of product and units remaining in ending work-in-process.
C) Distinguishing between machine center costs and activity costs.
D) Assigning overhead to units produced as accurately as possible.

Question 38

Watson, Inc., uses a weighted average process costing system. Beginning work-in-process inventory on June 1 consisted of 5,000 units. During June, 28,000 completed units were transferred out to finished goods inventory, and on June 30, 3,000 units remained in ending work-in-process. How many units were started during June?

A) 23,000
B) 25,000
C) 26,000
D) 31,000

Question 39

Westwood Company operates a process/continuous flow manufacturing system and employs weighted average process costing. On September 1, the work-in-process inventory consisted of 2,000 units. During September, another 40,000 units were started in process, and 36,000 completed units were transferred out to finished goods inventory. What number of units remained in work-in-process on September 30?

A) 6,000
B) 4,000
C) 2,000
D) 34,000

Question 40

Clarke, Inc., operates a process/continuous flow manufacturing system and employs weighted average process costing. During March, 80,000 completed units were transferred out to finished goods inventory. On March 31, another 3,000 units remained unfinished in work-in-process inventory. If 75,000 new units were started during March, how many units were in the beginning work-in-process inventory on March 1?

A) 3,000
B) 77,000
C) 5,000
D) 8,000

Question 41

Olsen Company processes lumber into a product called medium density fiberboard. The manufacturing process runs on a 24/7 clock. For the month of February, it had 40,000 square feet of medium density fiberboard in process at the beginning of the month. Another 180,000 square feet were put into process during February, and 60,000 square feet remained in process at the end of February.

-All raw material is added at the beginning of the process. What are the equivalent units of production for raw materials in February?

A) 240,000 square feet.
B) 200,000 square feet.
C) 220,000 square feet.
D) 160,000 square feet.

Question 42

Olsen Company processes lumber into a product called medium density fiberboard. The manufacturing process runs on a 24/7 clock. For the month of February, it had 40,000 square feet of medium density fiberboard in process at the beginning of the month. Another 180,000 square feet were put into process during February, and 60,000 square feet remained in process at the end of February.

- All raw material is added at the beginning of the process while conversion costs are added uniformly throughout the production process. The ending work-in-process inventory of 60,000 units was 40% complete for conversion at the end of February. What are the equivalent units of production for conversion in February?

A) 184,000 square feet.
B) 24,000 square feet.
C) 160,000 square feet.
D) 220,000 square feet.

Question 43

The Ever Clean Refinery Company uses a weighted average process costing system to account for its refinery operations. Data from the month of October is presented in the table below:


- What was the cost per equivalent of material?

A) $6.83
B) $7.34
C) $0.51
D) $1.94

Question 44

The Ever Clean Refinery Company uses a weighted average process costing system to account for its refinery operations. Data from the month of October is presented in the table below:


- If 50,000 completed units were produced in October, what was the total cost per unit?

A) $22.94
B) $23.15
C) $21.62
D) $7.71

Question 45

Waller Co. uses a weighted average process costing system. Material B is added at two different points in the production of shirms, 40% is added when the units are 20% completed, and the remaining 60% of Material B is added when the units are 80% completed. At the end of the quarter, there are 22,000 shirms in process, all of which are 50% completed. With respect to Material B, the ending shirms in process represent how many equivalent units?

A) 4,400 units.
B) 8,800 units.
C) 11,000 units.
D) 22,000 units.

Question 46

Colt Company uses a weighted average process cost system to account for the cost of producing a chemical compound. As part of production, Material B is added when the goods are 80% complete. Beginning work-in-process inventory for the current month was 20,000 units, 90% complete. During the month, 70,000 units were started in process, and 65,000 units were completed. There were no lost or spoiled units. If the ending inventory was 60% complete, the total equivalent units for Material B for the month was:

A) 65,000 units.
B) 70,000 units.
C) 85,000 units.
D) 90,000 units.

Question 47

San Jose Inc. uses a weighted average process costing system. All materials are introduced at the start of manufacturing, and conversion cost is incurred evenly throughout production. The company started 70,000 units during May and had the following work-in-process inventories at the beginning and end of the month.
May 1 30,000 units, 40% complete
May 31 24,000 units, 25% complete
Assuming no spoilage or defective units, the total equivalent units used to assign costs for May are:

A)
B)
C)
D)

Question 48

During December, Krause Chemical Company had the following selected data concerning the manufacture of Xyzine, an industrial cleaner.
All material is added at the beginning of processing in this department, and conversion costs are added uniformly during the process. The beginning work-in-process inventory had $120 of raw material and $180 of conversion costs incurred. Material added during December was $540 and conversion costs of $1,484 were incurred. Krause uses the first-in, first-out (FIFO) process-costing method. The equivalent units of production used to calculate conversion costs for December was:

A) 110 units.
B) 104 units.
C) 100 units.
D) 92 units.

Question 49

Price Company produces grape juice in a continuous process that is sold to wineries. The company employs a weighted average process costing system. Data concerning activity in January at the company are given in the table below.


- A total of 40,000 completed units were transferred out to finished goods during January. The total cost of the ending work-in-process is:

A) $60,000.
B) $13,500.
C) $73,500.
D) $136,500.

Question 50

Price Company produces grape juice in a continuous process that is sold to wineries. The company employs a weighted average process costing system. Data concerning activity in January at the company are given in the table below.


- A total of 40,000 completed units were transferred out to finished goods during January. The total cost of the completed units is:

A) $780,000.
B) $600,000.
C) $180,000.
D) $643,500.

Question 51

D & P Equipment Company has designed and patented a new golf putter called the "Curve," which features a convex face. This design makes it virtually impossible to incorrectly strike a putt resulting in a pull to the left or push to the right. D & P's competitive analysis suggests that it will have to sell the putter at a target price of $110. The company currently estimates raw material costs will be $40, direct labor $20, and that overhead will amount to 1.5 times direct labor cost.
Required:
a. Assuming that D & P Equipment Company requires a profit of 25%, what is its target cost for the "Curve"?
b. What current cost gap exists at present?

Question 52

Charlton Woodworking, Inc., specializes in custom restoration of antique furniture. The company costs work using a job order costing system and applies overhead using a single plant-wide rate based on direct labor hours. For the coming year, estimated total overhead for the firm is $275,000 and estimated direct labor hours are 5,000.
Required:
a. What is the predetermined overhead rate that will be used to apply overhead to individual restoration jobs?
b. Charlton Woodworking recently completed a restoration for Victoria's Corner that required 18 hours of direct labor time. What amount of overhead will be charged to this job?

Question 53

Vanadium Corporation is organized to produce custom metalworking goods. The company is organized into two departments: machining and assembly. Work in the machining department consists of cutting, shaping, and smoothing parts. This work is all highly automated and the company has determined that most overhead cost in the department is highly correlated with the number of hours the various machines are operated. By contrast, work in the assembly department is nearly all done manually and overhead is highly correlated with the number of direct labor hours worked. Consequently, Vanadium Corporation has opted to apply overhead to individual jobs using departmental overhead rates based on machine hours and direct labor hours respectively. Budget data for the two departments is given in the table below:
Required:
a. Determine the overhead rates that will be used to apply overhead to jobs that pass through the two departments at Vanadium Corporation.
b. Vanadium has been asked to provide a price quote for a job that will require 15 machine hours and 10 direct labor hours. What amount of overhead should be charged to this job when preparing the quoted price?

Question 54

Colt Company uses a weighted-average process cost system to account for the cost of producing a chemical compound. As part of production, Material B is added when the goods are 80% complete. Conversion costs are incurred evenly throughout the production process. Beginning work-in-process inventory for the current month was 20,000 units, 90% complete. During the month, 70,000 units were started in process, and 65,000 units were completed. There were no lost or spoiled units. The ending inventory was 60% complete.
Required:
Compute the equivalent units for material and conversion that will be used to assign for the current month.