Deck 8: Measuring and Managing Life-Cycle Costs

Question 1

A product can have an initial life-cycle cost that is relatively high,but a manufacturing cost that is relatively low.

Answer 1

True

Question 2

The best chance of incorporating engineering flexibility into products and services is during the:

A)research, development, and engineering cycle.
B)manufacturing cycle.
C)post-sale service and disposal cycle.
D)operating cycle.

Answer 2

research, development, and engineering cycle.

Question 3

The stage of the research development and engineering cycle in which the technical aspects of products and services are developed is the:

A)service phase.
B)market research stage.
C)product development stage.
D)product design stage.

Answer 3

product design stage.

Question 4

The characteristic of a management accounting and control system that means the language used and the technical methods of producing management accounting information not conflict within various parts of the organization is referred to as being:

A)in control.
B)accurate.
C)consistent.
D)Kaizen.

Question 5

The post-sale service and disposal cycle of total-life-cycle costing consists of the following stages:

A)market research, product design, and product development.
B)research, development, and engineering, manufacturing, and post-sale service and disposal.
C)selling price, target profit, and target cost.
D)rapid growth,transition,and maturity.

Question 6

Total-life-cycle costing is the name given to:

A)a method of cost planning to reduce manufacturing costs to targeted levels.
B)the process of examining each component of a product to determine whether its cost can be reduced.
C)the process of managing all costs along the value chain.
D)a system that focuses on reducing costs during the manufacturing cycle.

Question 7

To be profitable,a company must generate revenues to cover costs incurred throughout the entire value chain.

Question 8

An understanding of total-life-cycle costs can lead to:

A)additional costs during the manufacturing cycle.
B)less need for the evaluation of opportunity costs.
C)cost effective product designs that are easier to service.
D)mutually beneficial relationships between buyers and sellers.

Question 9

The post-sale service and disposal cycle is distinct from the manufacturing cycle.

Question 10

The characteristic of a management accounting and control system that allows employees to customize applications for local decisions is referred to as being:

A)timely.
B)flexible.
C)accurate.
D)in control.

Question 11

The research development and engineering cycle of the total life-cycle concept which focuses on developing prototypes and production processes is the:

A)research, development, and engineering cycle.
B)manufacturing cycle.
C)product design stage.
D)product development stage.

Question 12

Emerging customer needs are assessed and ideas generated for new products during the ________ stage of research,development,and engineering.

A)market research
B)product design
C)product development
D)service

Question 13

Deciding how to allocate resources over a product's life cycle usually is:

A)decided once at the beginning of the product design phase.
B)not known until the beginning of the manufacturing cycle.
C)part of product development.
D)an iterative process over the life of the product.

Question 14

As much as 80-85% of a product's total life costs are the result of decisions made in the research development and engineering cycle of the product's life.

Question 15

Total-life-cycle costing manages costs along the entire value chain.

Question 16

For most products,the majority of the product's total life costs are incurred during the:

A)research, development, and engineering cycle.
B)manufacturing cycle.
C)post-sale service and disposal cycle.
D)operating cycle.

Question 17

The relevance of information in a MACS includes providing all of the following EXCEPT:

A)the most accurate information possible.
B)a global framework that can be applied uniquely to each division or unit.
C)feedback on performance measures in a timely fashion.
D)different costing methods for each division.

Question 18

Identify and explain each of the three major cycles of the total-life-cycle costing approach.

Question 19

Deciding how to allocate organizational resources over a product's life cycle is primarily determined during the manufacturing stage.

Question 20

By some estimates,80% to 85% of a product's total life costs are committed by decisions made during the ________ cycle.

A)research, development, and engineering
B)manufacturing
C)post-sale service and disposal
D)operating

Question 21

Value engineering may result in all of the following EXCEPT:

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

Question 22

Concerns about target costing include all EXCEPT that:

A)attention may be diverted away from other company goals.
B)excessive pressure is put on suppliers.
C)development time may decrease.
D)burnout of design engineers occurs.

Question 23

Relevant costs for target costing include:

A)variable manufacturing costs.
B)variable manufacturing and variable nonmanufacturing costs.
C)all fixed costs.
D)all future costs,both variable and fixed.

Question 24

All of the following are true regarding target costing EXCEPT that:

A)improvements are implemented in small, incremental amounts.
B)customer input is collected continually throughout the target costing process.
C)input is requested from suppliers and distributors.
D)a key goal is to minimize ownership costs over the product's useful life.

Question 25

Traditional costing begins with:

A)the research development and engineering cycle.
B)marketing research.
C)target costing.
D)product specification.

Question 26

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

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

Question 27

Supply chain management may result in buyers and suppliers sharing information about each other's companies.

Question 28

Target costing is:

A)customer-driven.
B)value-driven.
C)engineering-driven.
D)market-driven.

Question 29

Target costing starts by estimating expected product costs.

Question 30

Target costing differs from traditional costing in all of the following ways EXCEPT:

A)target costing collects market research continually throughout the target costing process rather than as a single event.
B)target costing uses the total-life-cycle concept to minimize ownership costs.
C)traditional costing spends less time on product specification and design.
D)traditional costing uses cross-functional teams to guide the process.

Question 31

One concern of target costing is that even though the target cost might be met,increased development time may cause the product to come late to market.

Question 32

________ starts with the estimated product costs and next determines the estimated selling price.

A)Standard costing
B)Target costing
C)Kaizen costing
D)Traditional costing

Question 33

How does the total-life-cycle costing approach differ from traditional product costing? Explain.

Question 34

________ starts with the estimated product costs and next adds the expected profit margin.

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

Question 35

According to the total life cycle concept,minimizing the cost of ownership of a product over its useful life means:

A)maximizing the purchase price.
B)considering the initial purchase price as well as the costs of operating, maintaining and disposing of the product.
C)including costs incurred in the research development and engineering phase.
D)full costing.

Question 36

Target costing was pioneered:

A)in Detroit in the 1990s.
B)in Japan in the 1960s.
C)in Japan in the 1980s.
D)in Silicon Valley in the 1980s.

Question 37

In traditional costing,the company attempts to achieve a particular cost target.

Question 38

Guiding the target costing process is a cross-functional team made up of individuals from within and from outside the organization.

Question 39

Suppliers play a key role in the success of target costing.

Question 40

One goal of ________ is to design costs out of products in the research,development,and engineering stage.

A)cost-plus pricing
B)target costing
C)Kaizen costing
D)traditional costing

Question 41

What are target sales revenues?

A)$1,920,000
B)$4,000,000
C)$2,400,000
D)None of the above is correct.

Question 42

What is the target cost per unit if the company wants to maintain its same profit margin in total dollars before the change and Marketing is correct?

A)$112.50
B)$113.64
C)$123.34
D)$140.00

Question 43

Palermo Primping Products is contemplating introducing a new type of deluxe eye cream to complement its existing line of products.The following information applies.
Target price $25 per unit
Estimated annual target sales volume 60,000
Expected return on sales target 35%
Required:
Compute the unit target cost per unit.

Question 44

What does the breakeven time (BET)metric for the product development process measure?

A)The length of time from the project's beginning until the product has been introduced.
B)The length of time from when the product is introduced until the product becomes profitable.
C)The length of time from the project's beginning until the project has been introduced and generates enough profit to pay back the investment originally made in its development.
D)The length of time until sales cover fixed costs.

Question 45

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

Question 46

Target costing uses the total-life-cycle concept by making it a key goal to minimize the cost of ownership of a product over its useful life.

Question 47

Lance Allot,vice-president of Arthur Industries,a computer manufacturer in England,has been trying to figure out whether one of his branch managers,Ms.Gwen,has been achieving the company-wide return on sales target of 20 percent.Mr.Allot has just been given data from his new target costing system regarding Ms.Gwen's operations.Ms.Gwen's estimated target sales volume is 30,000 computers with a target-selling price of $1,000.The data also show that Ms.Gwen's unit target cost is $750 per unit.
Required:
a.Help Mr.Allot determine whether Ms.Gwen's return on sales target has been met.
b.Has Ms.Gwen done a good or a poor job? Explain.

Question 48

How do traditional costing and target costing differ in determining the selling price of a product?

Question 49

Breakeven time measures the length of time from the project's beginning until the product has been introduced and generated enough profit to pay back the investment originally made in its development

Question 50

What is the change in profit margin if Marketing is correct and only the sales price is changed?

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

Question 51

What is the target cost?

A)$1,800,000
B)$1,920,000
C)$2,520,000
D)$2,016,000

Question 52

Target costing is a comprehensive approach to profit planning and cost management.

Question 53

What is the target profit margin?

A)$480,000
B)$600,000
C)$384,000
D)$360,000

Question 54

Xenon Company incurred $1,000,000 in research and development costs over an 18 month period to develop product X1.Sales of product X1 begin at the end of the 18 month period.Sales price of product X1 is $20 per unit; variable costs are $8 per unit; fixed costs are $140,000 per month.Sales volume is projected to be 20,000 units per month.Calculate the breakeven time for product X1.

Question 55

What is the target cost for each interior door?

A)$96
B)$116
C)$120
D)$90

Question 56

In target costing,what are at least two techniques used to achieve target costing goals?

Question 57

Breakeven time:

A)stresses profitability.
B)tracks the entire cost of the design and development process.
C)is denominated in time.
D)All of the above are correct.

Question 58

Breakeven time brings together the two elements of R&D and profitability.

Question 59

Compare target costing and Kaizen costing.

Question 60

What is the new target cost per unit if profit margin is 25% of sales?

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

Question 61

The objective to reduce product development cycle time can be measured by the number of products delivered on time.

Question 62

What is environmental costing?

Question 63

Environmental costing computes the cost effects an organization has on the environment.

Question 64

What is benchmarking and why is it used?

Question 65

What does the breakeven time (BET)metric for the product development process measure?

Question 66

Explain why buy-in by employees is critical to benchmarking.

Question 67

Which of the following is an implicit environmental cost?

A)direct costs of modifying technology and processes
B)costs of cleanup and disposal
C)fines levied by government agencies
D)costs of legal counsel and administration

Question 68

Which of the following could be used to measure the objective of reducing product development cycle time?

A)potential value of projects in the project pipeline
B)number of new projects launched based on customer input
C)number of projects delivered on time
D)number of failures or returns of new products from customers

Question 69

The objective to discover and develop new,more effective,or safer products/services can be measured by the time spent with key customers at targeted accounts learning about their future opportunities and needs.

Question 70

Which of the following could be used to measure the objective of anticipating future customer needs?

A)potential value of projects in the project pipeline
B)number of new projects launched based on customer input
C)number of projects delivered on time
D)number of failures or returns of new products from customers

Question 71

What are some nonfinancial measures that a company might use in order to motivate achieving the objective of anticipating future customer needs?

Question 72

Environmental costing and ABC:
Abbot Corporation produces 200,000,000 units of product X and 80,000,000 of product Y with the following costs and machine hours.

a. Determine total product cost per unit for each product using a traditional costing system with machine hours as the cost driver.
b. Determine total product cost per unit for each product using an activity based costing system.Use the number of units as the cost driver for each activity.