Question 1

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

Accepted Answer

A)  $262.50
B)  $306.00
C)  $375.00
D)  $364.29
E)  $330.00 B

Question 2

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

Accepted Answer

A)  TOC takes a short-term approach and ABC takes a long-term approach.
B)  TOC takes a long-term approach and ABC takes a short-term approach.
C)  Both TOC and ABC take a short-term approach.
D)  Both TOC and ABC take a long-term approach. A

Question 3

Place the five steps in implementing a target costing approach in the proper order: 1 - Determine desired profit
2 - Use kaizen costing and operational control to reduce costs
3 - Determine the market price
4 - Use value engineering to identify ways to reduce product costs
5 - Calculate the target cost at market price less desired profit

Accepted Answer

A)  3, 2, 1, 4, 5.
B)  2, 5, 4, 1, 3.
C)  4, 5, 1, 3, 2.
D)  3, 1, 5, 4, 2.
E)  5, 3, 2, 1, 4. D

Question 4

Generally, firms will price a product more competitively at which stages of the product's sales life cycle?

Accepted Answer

A)  Product introduction and Growth.
B)  Maturity and Decline.
C)  Throughout the cycle.
D)  At the end of the life cycle.

Question 5

The profit margin based on manufacturing cost for model F-32 is:

Accepted Answer

A)  $481.68.
B)  $314.69.
C)  $239.09.
D)  $317.18.
E)  $338.16.

Question 6

Which function(s) is/are the bottleneck(s)?

Accepted Answer

A)  Exterior construction and pulp filter insertion.
B)  Pulp filter insertion.
C)  Painting.
D)  Packaging.
E)  Exterior construction.

Question 7

If Johnson determines price so as to receive a desired return on assets of 15%, the price is:

Accepted Answer

A)  $262.50
B)  $306.00
C)  $375.00
D)  $364.29
E)  $330.00

Question 8

Many firms are finding it is difficult to compete successfully on cost leadership or differentiation alone, and they must, in fact, compete on both:

Accepted Answer

A)  Cost and design.
B)  Price and functionality.
C)  Cost and price.
D)  Design and functionality.
E)  Cost and functionality.

Question 9

PureSwing Golf, Inc. manufactures swing analyzer systems for golf instructors. Two of its systems, Pure1000 and the Pure 5000 have these characteristics:  The Pure1000 sells for $1,000 installed and the Pure5000 sells for $1,750 installed.
Required:
1. What are the current profit margins on both systems?
2. PureSwing's management believes that it must drop the price on the Pure1000 to $800 and on the Pure5000 to $1,450 to remain competitive in the market. Recalculate profit margins for both products at these price levels.
3. Describe two ways that PureSwing could cut its costs to get the profit margins back to their original levels.

Accepted Answer

The answer of PureSwing Golf, Inc. manufactures swing analyzer systems...

Question 10

The product cost for model B-13 is:

Accepted Answer

A)  $1,457.82.
B)  $1,293.32.
C)  $1,159.34.
D)  $905.31.
E)  $980.91.

Question 11

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

Accepted Answer

A)  Sales and price decline, as do the number of competitors.
B)  Sales continue to increase but at a decreasing rate. The number of competitors and product variety decline.
C)  Sales increase rapidly along with an increase in product variety.
D)  Sales rise slowly as customers become aware of the new product or service. Product variety is limited.

Question 12

Amanda Jones owns and operates Motorcycle Rentals Inc.(MRI). Customers can rent a motorcycle in one city and then return it at one of three designated cities. Following are the costs involved in providing this service each year:  Motorcycle Rentals Inc. began business two years ago with a $400,000 expenditure for a fleet of 45 motorcycles. These are expected to last five more years, at which time a new fleet will be purchased. Jeremy is satisfied with the steady average rentals per year of 10,000.
Required:
1. What price should Jeremy charge per rental for the business to make a twenty percent life cycle profit?
2. What price should Jeremy charge per rental for the business to make a before-tax thirty percent return on investment?

Accepted Answer

The answer of Amanda Jones owns and operates Motorcycle Rentals...

Question 13

The current profit per unit is:

Accepted Answer

A)  $250.
B)  $300.
C)  $400.
D)  $450.
E)  $475.

Question 14

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?

Accepted Answer

A)  $210.
B)  $200.
C)  $190.
D)  $180.

Question 15

Jared Monsma, Weekend Golfer's vice president for marketing, has concluded from his market analysis that sales have been dwindling for the standard golf cart because of aggressive pricing by competitors. Weekend Golfers sells these golf carts online for $3,000, whereas the competition sells a comparable cart online in the $2,900 range. Jared has determined that dropping the price to $2,850 would regain the firm's annual market share of 8,000 golf carts. Cost data based on sales of 8,000 gas golf carts follow:

Accepted Answer

The answer of Jared Monsma, Weekend Golfer's vice president for...

Question 16

During which stage of the sales life cycle of a product do sales continue to increase but at a decreasing rate, and competition tends to focus on cost?

Accepted Answer

A)  Maturity.
B)  Decline.
C)  Inflation.
D)  Growth.
E)  Introduction.

Question 17

Which is the most profitable product if there is no constraint on labor time?

Accepted Answer

A)  Product X.
B)  Product Y.
C)  Product Z.
D)  More than one of the products has equal total throughput margin per labor minute.
E)  There isn't enough information to answer the question.

Question 18

High Point Furniture manufactures a high-quality dining table, which is offered in both oak and walnut. The demand for the tables is 800 units for the oak table and 1500 for the walnut table. The tables are priced at $495 and $995 for the oak and walnut tables, respectively. The materials cost is $210 for the oak table and $430 for the walnut table. In addition, High Point has the following manufacturing information for the four manufacturing processes (receiving, preparation, assembly, and finishing), showing the amount of time (in minutes) required for each table for each process, and the total minutes of time available for each process.  Required:
1. Which process(es), if any, are constraints for the current level of demand?
2. Given any constraints identified in part (1) above, determine the best production and sales plan for the two types of tables.
3. What is the overall contribution from the production plan you determined in part (2) above?

Accepted Answer

The answer of High Point Furniture manufactures a high-quality dining...

Question 19

PharmCo Manufacturing operates a contract manufacturing plant in London, England. The plant produces a variety of pharmaceutical drugs for companies around the world. Cycle time is a critical success factor for PharmCo, which has developed a number of measures of manufacturing speed. The company has studied the matter and found that competitive contract manufacturers have manufacturing cycle efficiency (MCE) time of about 40 percent. When last measured, PharmCo's MCE was 35 percent. At PharmCo, cycle time is defined as beginning at the point when the order taking is complete.
Some key measures from the most recent month's production, averaged over all the jobs during the period, are as follows:  Required:
Determine the MCE time for the most recent month. What can you infer from the MCE time that you calculated?

Accepted Answer

The answer of PharmCo Manufacturing operates a contract manufacturing plant...

Question 20

A type of strategic pricing based on analytical methods is used to:

Accepted Answer

A)  Optimally determine the best price.
B)  Utilize knowledge of the sales life cycle in setting price.
C)  More accurately determine life cycle costs as a basis for setting price.
D)  Employ improved design methods that reduce cost and improve price.

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