Question 1

Pat Baldwin owns and operates Outstanding Quality Rentals (OQR). OQR offers kayak rentals and shuttle service on the Petaholee River. Customers can rent kayaks at one station and enter the river there. They can then exit at one of two designated locations to catch a shuttle to return them to their vehicles. Following are the costs involved in providing this service each year.  OQR began business three years ago with a $36,000 expenditure for a fleet of 50 kayaks. These are expected to last seven more years, at which time a new fleet will be purchased. Pat is satisfied with the steady average rentals per year of 9,900.
Required:
What price should Pat charge per rental for the business to make a thirty percent life cycle profit?

Accepted Answer

The answer of Pat Baldwin owns and operates Outstanding Quality...

Question 2

In order to reduce costs so as to reach the desired target cost, Quality Industries should also focus on reducing the cost of:

Accepted Answer

A) Direct materials 
B) Direct labor 
C) Machine setups 
D) Mechanical assembly

Question 3

If Johnson determines price using a desired return on life cycle costs of 30%, the price is:

Accepted Answer

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

Question 4

The five tasks that follow take place with the concept known as target costing: 1. Use value engineering to identify ways to reduce product cost.
2) Determine the market price.
3) Determine the desired profit.
4) Use kaizen costing and operational control to reduce costs.
5) Calculate the target cost at market price less desired profit.
Which of the following choices depicts the correct sequence of these tasks?

Accepted Answer

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

Question 5

Which of the following is a common form of value engineering in which the design team prepares several possible designs of the product, each having similar features with different levels of performance and different costs?

Accepted Answer

A) Cost analysis. 
B) Variable design engineering. 
C) Cost-based value engineering. 
D) Functional analysis. 
E) Design analysis.

Question 6

Cling Co. produces and sells three products (X, Y, and Z). The following data relate to the three products. Labor is a fixed cost.  Required:
1. Which is the most profitable product if there is no labor constraint?
2. Which is the most profitable product if there is a labor constraint?

Accepted Answer

The answer of Cling Co. produces and sells three products...

Question 7

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 8

Throughput margin is defined as sales less:

Accepted Answer

A) Direct labor costs. 
B) Direct material costs. 
C) Direct labor and material costs. 
D) Processing costs. 
E) Manufacturing costs.

Question 9

The sequence of phases in the product or service's life in the market - from the introduction of the product or service to the growth in sales and finally maturity, decline, and withdrawal from the market is the:

Accepted Answer

A) Sales life cycle. 
B) Target life cycle. 
C) Market life cycle. 
D) Critical life cycle. 
E) Cost life cycle.

Question 10

What price will the company charge if the firm uses cost-plus pricing based on variable manufacturing cost and a markup percentage of 200%?

Accepted Answer

A) $810. 
B) $450. 
C) $540. 
D) $675. 
E) Some other amount.

Question 11

The goals of coordinating manufacturing processes, reducing the amount of inventory, and improving overall productivity is particularly important in a:

Accepted Answer

A) Standard cost system. 
B) Just-in-time system. 
C) Normal costing system. 
D) Activity based costing system. 
E) Total quality management system.

Question 12

If the market price for B-13 and F-32 are reduced to $1,695 and $1,095 respectively, and Lens Care wants to maintain market share and profitability, what is the target cost for B-13 and F-32 (round to nearest whole dollar)?

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
E) Option E

Question 13

What price will the company charge if the firm uses cost-plus pricing based on total cost and a markup percentage of 30%?

Accepted Answer

A) $180. 
B) $121.50. 
C) $780. 
D) $526.50. 
E) Some other amount.

Question 14

The sequence of activities within the firm which begins with research and development, followed by design, and manufacturing, marketing/distribution, and customer service is the:

Accepted Answer

A) Sales life cycle. 
B) Target life cycle. 
C) Market life cycle. 
D) Critical life cycle. 
E) Cost life cycle.

Question 15

During the sales life cycle, which is an example of what happens during the introduction 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 16

In order to reduce costs so as to reach the desired target cost, Quality Chairs should also focus on reducing the cost of:

Accepted Answer

A) Direct materials 
B) Direct labor 
C) Machine setups 
D) Mechanical assembly

Question 17

During the sales life cycle, which is an example of what happens during the growth 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 18

Which of the following is a method of reducing cost by identifying parts in different products that are common and interchangeable?

Accepted Answer

A) Target costing. 
B) Value chain analysis. 
C) Concurrent engineering. 
D) Group technology. 
E) Theory of constraints.

Question 19

The current profit per unit is:

Accepted Answer

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

Question 20

AirTravel Inc. manufactures a wide variety of parts for commercial aircraft, including airplane engines. The component is purchased by OEM (original equipment manufacturers) such as Boeing, for use in the larger and more powerful outboards. The units sell for $10,000, and sales volume averages 2,000 units per year. Recently, AirTravel's major competitor lowered the price of the equivalent part to $9,500. The market was very competitive, and AirTravel realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year:  Required:
Calculate the target cost for maintaining current market share and profitability.

Accepted Answer

The answer of AirTravel Inc. manufactures a wide variety of...

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