Question 1

Target operating profit per unit is the operating profit that a seller aims to earn per unit of output sold.

Accepted Answer

A) True 
 B)False

Question 2

Estimating capacity costs is unique to manufacturing and it is not applicable to non-production entities.

Accepted Answer

A) True 
 B)False

Question 3

Answer the following questions using the information below:
Ace Books Company currently sells eBook readers for $270.It has costs of $210.A competitor is bringing a new eBook reader to market that will sell for $225.Management believes it must lower the price to $225 to compete in the market for eBook readers.Marketing believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Ace's sales are currently 10 000 eBook readers per year.
-What is the target cost if operating profit is 25% of sales?

Accepted Answer

A)  $56.25
B)  $202.50
C)  $168.75
D)  $67.50E) None of the above
F) B) and C)

Question 4

Managers cannot reduce the costs of capacity easily or quickly because they are fixed.

Accepted Answer

A) True 
 B)False

Question 5

Answer the following questions using the information below:
Snowy River Transformers is in the process of evaluating a new product using the following information:
∙ A new transformer has two production runs each year,each with $10 000 in set-up costs.
∙ The new transformer incurred $30 000 in development costs and is expected to be produced over the next three years.
∙ Direct costs of producing the transformers are $40 000 per run of 5000 transformers.
∙ Indirect manufacturing costs charged to each run are $45 000.
∙ Destination charges for each transformer average $1.00.
∙ Customer service expenses average $0.20 per transformer.
∙ The transformers are selling for $25 the first year and will increase by $3 each year thereafter.
∙ Sales units equal production units each year.
-What are estimated life-cycle revenues?

Accepted Answer

A)  $310 000
B)  $250 000
C)  $280 000
D)  $840 000E) A) and B)
F) None of the above

Question 6

________ is the level of capacity utilisation that satisfies average customer demand over a period that includes seasonal,cyclical and trend factors.

Accepted Answer

A)  Budgeted capacity utilisation
B)  Normal capacity utilisation
C)  Practical capacity
D)  Theoretical capacityE) All of the above
F) A) and D)

Question 7

Many companies use life-cycle budgeting to determine target prices.

Accepted Answer

A) True 
 B)False

Question 8

Cost accounting systems focus on when costs are:

Accepted Answer

A)  incurred.
B)  locked in.
C)  used for setting prices for products and services.
D)  paid for.E) B) and C)
F) A) and B)

Question 9

A graph comparing locked-in costs with incurred costs will have:

Accepted Answer

A)  locked-in costs rising much faster initially than the incurred cost,but joining the incurred cost line at the completion of the value-chain functions.
B)  locked-in costs rising much faster initially,but dropping to zero after the product is manufactured.
C)  no differences unless the product is manufactured inefficiently.
D)  the two cost lines running parallel until the end of the process,when they join.E) A) and B)
F) All of the above

Question 10

Normal capacity utilisation:

Accepted Answer

A)  when used for product costing results in the lowest cost estimate of the four capacity options.
B)  can result in setting selling prices that are not competitive.
C)  represents the maximum units of production intended for current capacity.
D)  represents real capacity available to the company.E) A) and B)
F) A) and C)

Question 11

Answer the following questions using the information below:
Ace Books Company currently sells eBook readers for $270.It has costs of $210.A competitor is bringing a new eBook reader to market that will sell for $225.Management believes it must lower the price to $225 to compete in the market for eBook readers.Marketing believes that the new price will cause sales to increase by 10%,even with a new competitor in the market.Ace's sales are currently 10 000 eBook readers per year.
-What is the change in operating profit if Marketing is correct and only the sales price is changed?

Accepted Answer

A)  $(165 000) 
B)  $45 000
C)  $165 000
D)  $(435 000) E) All of the above
F) A) and D)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Managers frequently ________ their organisation's output cost structure against those of competitors.

Accepted Answer

A)  plan
B)  compare
C)  benchmark
D)  publiciseE) A) and C)
F) A) and B)

Question 14

Budgeted capacity utilisation can be more reliably estimated than normal capacity utilisation.

Accepted Answer

A) True 
 B)False

Question 15

Explain the difference between locked-in costs and costs incurred.Which of these types of costs does a traditional accounting system emphasise? At which stage of the value chain are most costs locked in? At which stage of the value chain are most costs incurred? What implication does this have for good cost management?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Locked-in costs are costs that have not ...

Question 16

Using budgeted capacity to set selling prices:

Accepted Answer

A)  uses the perspective of long-run product pricing.
B)  can result in a downward demand spiral.
C)  spreads fixed costs over available capacity.
D)  avoids the recalculation of unit costs when expected demand levels change.E) B) and D)
F) C) and D)

Question 17

Many companies combine value engineering with kaizen,or continuous improvement,methods that seek to reduce the time it takes to do a task and to eliminate waste during production and delivery of outputs.

Accepted Answer

A) True 
 B)False

Question 18

In some industries,such as legal and consulting,most costs are locked in:

Accepted Answer

A)  during the marketing stage.
B)  when they are incurred.
C)  during the customer-service stage.
D)  during the design stage.E) A) and B)
F) All of the above

Question 19

A locked-in cost is a(n) :

Accepted Answer

A)  cost that can be changed in the short run.
B)  cost that has not yet been incurred but,based on decisions that have already been made,will be incurred in the future.
C)  opportunity cost that is fixed in the short run.
D)  cost that has been incurred,but based on decisions that have already been made,will not be incurred in the future.E) C) and D)
F) None of the above

Question 20

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.
-When target costing and target pricing are used together:

Accepted Answer

A)  the focus of target pricing is to undercut the competition.
B)  the target cost is established first,then the target price.
C)  target costs are generally higher than current costs.
D)  the target cost is the estimated long-run cost that enables a product or service to achieve a desired profit.E) C) and D)
F) B) and D)

Exam 7: Target Costing, Managing Activities and Managing Capacity

Managers frequently ________ their organisation's output cost structure against those of competitors.

Correct Answer
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Correct Answer
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Correct Answer
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________ is the level of capacity utilisation that satisfies average customer demand over a period that includes seasonal,cyclical and trend factors.

Correct Answer
verified

Managers cannot reduce the costs of capacity easily or quickly because they are fixed.

Correct Answer
verified

In some industries,such as legal and consulting,most costs are locked in:

Correct Answer
verified

Correct Answer
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A graph comparing locked-in costs with incurred costs will have:

Correct Answer
verified

Target operating profit per unit is the operating profit that a seller aims to earn per unit of output sold.

Correct Answer
verified

Using budgeted capacity to set selling prices:

Correct Answer
verified

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

Correct Answer
verified

Estimating capacity costs is unique to manufacturing and it is not applicable to non-production entities.

Correct Answer
verified

Budgeted capacity utilisation can be more reliably estimated than normal capacity utilisation.

Correct Answer
verified

Many companies use life-cycle budgeting to determine target prices.

Correct Answer
verified

Correct Answer
verified

Normal capacity utilisation:

Correct Answer
verified

Many companies combine value engineering with kaizen,or continuous improvement,methods that seek to reduce the time it takes to do a task and to eliminate waste during production and delivery of outputs.

Correct Answer
verified

Cost accounting systems focus on when costs are:

Correct Answer
verified

A locked-in cost is a(n) :

Correct Answer
verified

Correct Answer
verified
Locked-in costs are costs that have not ...
View Answer

Exam 7: Target Costing, Managing Activities and Managing Capacity

Managers frequently ________ their organisation's output cost structure against those of competitors.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

________ is the level of capacity utilisation that satisfies average customer demand over a period that includes seasonal,cyclical and trend factors.

Correct AnswerverifiedShow Answer

Managers cannot reduce the costs of capacity easily or quickly because they are fixed.

Correct AnswerverifiedShow Answer

In some industries,such as legal and consulting,most costs are locked in:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A graph comparing locked-in costs with incurred costs will have:

Correct AnswerverifiedShow Answer

Target operating profit per unit is the operating profit that a seller aims to earn per unit of output sold.

Correct AnswerverifiedShow Answer

Using budgeted capacity to set selling prices:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Estimating capacity costs is unique to manufacturing and it is not applicable to non-production entities.

Correct AnswerverifiedShow Answer

Budgeted capacity utilisation can be more reliably estimated than normal capacity utilisation.

Correct AnswerverifiedShow Answer

Many companies use life-cycle budgeting to determine target prices.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Normal capacity utilisation:

Correct AnswerverifiedShow Answer

Many companies combine value engineering with kaizen,or continuous improvement,methods that seek to reduce the time it takes to do a task and to eliminate waste during production and delivery of outputs.

Correct AnswerverifiedShow Answer

Cost accounting systems focus on when costs are:

Correct AnswerverifiedShow Answer

A locked-in cost is a(n) :

Correct AnswerverifiedShow Answer

Correct AnswerverifiedLocked-in costs are costs that have not ...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Locked-in costs are costs that have not ...
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