Question 1

Answer the following questions using the information below:
Elliott Manufacturing has decided to produce a new interior door to complement its exterior door line.The new door is expected to sell for $60 each,and the annual target sales volume for the doors is 20 000.Elliott has target operating profit of 20% of sales.
-What is the target cost?

Accepted Answer

A)  $1 260 000
B)  $960 000
C)  $900 000
D)  $1 008 000 B

Question 2

What is the primary reason a firm would adopt target costing?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The primary reason a firm would adopt target costing is to reduce costs so that target profit and sales are achieved.Its unique approach is to design costs out of products during the design stage in the product life cycle.Many firms are adopting this approach when they cannot reduce costs further using traditional costing methods,which focus on cost reductions in manufacturing.

Question 3

Answer the following questions using the information below:
Perth TV currently sells flat screen televisions for $180.It has costs of $140.A competitor is bringing a new flat screen television to market that will sell for $150.Perth believes it must lower the price of its television sets to $150 to remain competitive.Marketing believes that the new price will cause sales to increase by 10%,even with the new competitor in the market.Perth's sales are currently 100 000 televisions per year.
-What is the target cost if target operating profit is 25% of sales?

Accepted Answer

A)  $45.00
B)  $135.00
C)  $112.50
D)  $37.50 C

Question 4

For manufacturing firms,product costs are generally locked in during the manufacturing stage.

Accepted Answer

A) True 
 B)False

Question 5

In ________ budgeting,managers estimate the revenues and business function costs of the value chain attributable to each product from its initial R&D to its final customer service and support.

Accepted Answer

A)  product life-cycle
B)  target
C)  value
D)  capacity

Question 6

Mt Safety Avionics currently sells radios for $1800 each.Each radio costs $1400 to make.A competitor is introducing a new radio that will sell for $1600.Mt Safety believes it must lower the price to $1600 to compete in the market for radios.However,its Marketing Department believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Mt Safety's sales are currently 1000 radios 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

The answer of Mt Safety Avionics currently sells radios for...

Question 7

Place the following steps for the implementation of target costing in order:
A = Derive a target cost
B = Develop a target price
C = Perform value engineering
D = Determine target operating profit

Accepted Answer

A)  A B C D
B)  B D A C
C)  B A D C
D)  A D B C

Question 8

Value engineering may result in all of the following EXCEPT:

Accepted Answer

A)  the evaluation of all business functions within the value chain.
B)  changes in materials specifications.
C)  increases in the quantity of non-value-added cost drivers.
D)  improved product design.

Question 9

We describe an activity as a value-added activity if its elimination by a manager would reduce the perceived value or utility (usefulness)that customers experience from using the relevant output.

Accepted Answer

A) True 
 B)False

Question 10

When significant differences exist between practical capacity and budgeted capacity utilisation,companies may:

Accepted Answer

A)  use practical capacity for meaningful feedback to the marketing manager.
B)  use budgeted capacity utilisation for setting selling prices.
C)  classify the difference as planned unused capacity.
D)  All of these answers are correct.

Question 11

Answer the following questions using the information below:
Potter Products has produced an electric coffee pot to complement its range of kitchen products.The new coffee pot can be sold at a target price of $46,and annual target sales volume for the coffee pot is 250 000.Potter has target operating profit of 20% of sales.
-What is the total target cost?

Accepted Answer

A)  $2 484 000
B)  $9 200 000
C)  $1 000 000
D)  $11 500 000

Question 12

________ analysis is a fundamental tool in value engineering.

Accepted Answer

A)  Activity
B)  Value
C)  Strategic
D)  Hybrid

Question 13

Which of the following focuses on reducing costs during the manufacturing stage?

Accepted Answer

A)  Kaizen costing
B)  Life-cycle costing
C)  Cost-plus pricing
D)  Target costing

Question 14

Answer the following questions using the information below:
Perth TV currently sells flat screen televisions for $180.It has costs of $140.A competitor is bringing a new flat screen television to market that will sell for $150.Perth believes it must lower the price of its television sets to $150 to remain competitive.Marketing believes that the new price will cause sales to increase by 10%,even with the new competitor in the market.Perth's sales are currently 100 000 televisions per year.
-What is the change in operating profit if marketing is correct and only the sales price is changed?

Accepted Answer

A)  $(1 100 000) 
B)  $1 100 000
C)  $300 000
D)  $(2 900 000)

Question 15

Answer the following questions using the information below:
Potter Products has produced an electric coffee pot to complement its range of kitchen products.The new coffee pot can be sold at a target price of $46,and annual target sales volume for the coffee pot is 250 000.Potter has target operating profit of 20% of sales.
-What are the target sales revenues?

Accepted Answer

A)  $1 150 000
B)  $11 500 000
C)  $12 000 000
D)  $1 200 000

Question 16

Capacity costs also arise in non-production parts of the value chain.

Accepted Answer

A) True 
 B)False

Question 17

From the perspective of long-run product costing,which of the following is the best to use?

Accepted Answer

A)  Theoretical capacity for performance evaluation
B)  Practical capacity for pricing decisions
C)  Budgeted capacity utilisation to highlight unused capacity
D)  Normal capacity utilisation for benchmarking purposes

Question 18

The first step in target pricing is to determine the target cost of the product.

Accepted Answer

A) True 
 B)False

Question 19

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 practical capacity for the month of April?

Accepted Answer

A)  720 000 units
B)  1 000 000 units
C)  550 800 units
D)  240 000 units

Question 20

Normal capacity utilisation is the expected level of capacity utilisation for the current budget period,which is typically one year.

Accepted Answer

A) True 
 B)False

Exam 7: Target Costing, Managing Activities and Managing Capacity

What is the primary reason a firm would adopt target costing? _ _

For manufacturing firms,product costs are generally locked in during the manufacturing stage.

In ________ budgeting,managers estimate the revenues and business function costs of the value chain attributable to each product from its initial R&D to its final customer service and support.

Place the following steps for the implementation of target costing in order: A = Derive a target cost B = Develop a target price C = Perform value engineering D = Determine target operating profit

Value engineering may result in all of the following EXCEPT:

We describe an activity as a value-added activity if its elimination by a manager would reduce the perceived value or utility (usefulness)that customers experience from using the relevant output.

When significant differences exist between practical capacity and budgeted capacity utilisation,companies may:

________ analysis is a fundamental tool in value engineering.

Which of the following focuses on reducing costs during the manufacturing stage?

Capacity costs also arise in non-production parts of the value chain.

From the perspective of long-run product costing,which of the following is the best to use?

The first step in target pricing is to determine the target cost of the product.

Normal capacity utilisation is the expected level of capacity utilisation for the current budget period,which is typically one year.

Exam 7: Target Costing, Managing Activities and Managing Capacity

What is the primary reason a firm would adopt target costing? _____________________________________________________________________________________________ _____________________________________________________________________________________________

For manufacturing firms,product costs are generally locked in during the manufacturing stage.

In ________ budgeting,managers estimate the revenues and business function costs of the value chain attributable to each product from its initial R&D to its final customer service and support.

Place the following steps for the implementation of target costing in order: A = Derive a target cost B = Develop a target price C = Perform value engineering D = Determine target operating profit

Value engineering may result in all of the following EXCEPT:

We describe an activity as a value-added activity if its elimination by a manager would reduce the perceived value or utility (usefulness)that customers experience from using the relevant output.

When significant differences exist between practical capacity and budgeted capacity utilisation,companies may:

________ analysis is a fundamental tool in value engineering.

Which of the following focuses on reducing costs during the manufacturing stage?

Capacity costs also arise in non-production parts of the value chain.

From the perspective of long-run product costing,which of the following is the best to use?

The first step in target pricing is to determine the target cost of the product.

Normal capacity utilisation is the expected level of capacity utilisation for the current budget period,which is typically one year.

What is the primary reason a firm would adopt target costing? _ _