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Exam 7: Target Costing, Managing Activities and Managing Capacity

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Question 31

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What are the major influences that must be considered when pricing a new product? Discuss each briefly. _____________________________________________________________________________________________ _____________________________________________________________________________________________

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The major influences are customers,compe...

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Question 32

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What is the effect of spreading fixed manufacturing costs over a shrinking budgeted capacity utilisation amount?

A) Increased unit costs
B) Greater utilisation of capacity
C) Greater demand for the product
D) More competitive selling prices

E) None of the above
F) B) and D)

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Question 33

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________ reduces theoretical capacity for unavoidable operating interruptions.

'Theoretical capacity' is the capacity level that represents what the firm is able to obtain under reasonable circumstances.

Graphic analysis of incurred and locked-in costs provides several insights as to how the different concepts influence decisions.Which of the following statements is FALSE?

Answer the following questions using the information below: Davidson,Lindwall Associates is in the process of evaluating its new client services for the business systems consulting division. ∙ Distribution planning,a new service,incurred $250 000 in development costs. ∙ The direct costs of providing the service,which is all labour,averages $50 per hour. ∙ Other costs for this service are estimated at $300 000 per year. ∙ The current program for Distribution planning is expected to last for two years.At that time,expected new operating systems are likely to make the service non-viable. ∙ Customer service expenses average $250 per client,with each job lasting an average of 40 hours.The current staff expects to bill 15 000 hours for each of the two years the program is in effect.Billing averages $90 per hour. -What is the estimated life-cycle operating profit for the first year?

Direct material costs are locked in when they are:

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 for each interior door?

a.List the four different measures of capacity. b.Which measure of capacity is best for setting prices? Why? c.Which measure of capacity is best for evaluating the performance of the marketing manager for the current year? Why? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Challenges only result from estimating the denominator level,but not the costs in the numerator of the fixed manufacturing cost rate.

Long-run pricing decisions include:

For benchmarking purposes,it is best to use budgeted capacity because all competitors use about the same capacity for production.

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 target cost for each coffee pot?

Although the Australian Taxation Office (ATO)requires that business taxpayers ascertain the cost of inventory using absorption costing,it does not specify the capacity concept that the taxpayer should use to calculate the fixed production cost per unit.

Budgeted fixed manufacturing costs of a product using practical capacity:

Answer the following questions using the information below: Davidson,Lindwall Associates is in the process of evaluating its new client services for the business systems consulting division. ∙ Distribution planning,a new service,incurred $250 000 in development costs. ∙ The direct costs of providing the service,which is all labour,averages $50 per hour. ∙ Other costs for this service are estimated at $300 000 per year. ∙ The current program for Distribution planning is expected to last for two years.At that time,expected new operating systems are likely to make the service non-viable. ∙ Customer service expenses average $250 per client,with each job lasting an average of 40 hours.The current staff expects to bill 15 000 hours for each of the two years the program is in effect.Billing averages $90 per hour. -What is the estimated life-cycle operating profit for both years combined?

The use of theoretical capacity results in an unrealistically low fixed manufacturing cost per unit because it is based on:

Sellers that set a target price have an idea of the amount of operating profit that they expect from setting that price.

With which of the following do managers face uncertainty when estimating?

A(n) ________ represents something that one or more people within an organisation do to assist In achieving its objective.