Question 1

Electronic Component Company is a producer of high-end video and music equipment.ECC currently sells its top of the line "ECC" DVD player for a price of $250.It costs ECC $210 to make the player.ECC's main competitor is coming to market with a new DVD player that will sell for a price of $220.ECC feels that it must reduce its price to $220 in order to compete.The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%.ECC currently sells 200,000 DVD players per year.
What is the target cost if target profit is 20% of sales and ECC must meet the competitive price of $220?

Accepted Answer

The target cost is calculated by subtracting the target profit from the competitive price. Target profit is 20% of the sales price, which is 20% of $220, equaling $44. Therefore, the target cost is $220 - $44 = $176.00.

Question 2

Bryan Inc.produces a specialty top-quality juice machine.The product,the JM50,requires four processes to be completed.Specifically,these processes are exterior construction,pulp filter insertion,painting,and packaging.Each process is performed at separate workstations with different completion rates:
Exterior construction can manufacture 100,000 juicer exteriors per day.
Pulp filter insertion can install 25,000 filters every 6 hours.
Painting can decorate 3,000 juicers every half hour.
Packaging can package 5,000 juicers per hour.
The plant operates 24/7,24 hours a day every day of the week.
What is the least amount of monthly capacity you would have to add to the bottleneck(s)to shift the bottleneck to a different process?

Accepted Answer

Adding 600,001 units to both Exterior Construction and Pulp Filter Insertion would allow the plant to produce 4.2 million juicers per month (3 million from Exterior Construction, 3 million from Pulp Filter Insertion, 4.32 million from Painting, and 3.6 million from Packaging). This would shift the bottleneck to the Packaging process, as it has a lower completion rate than the other processes. Therefore, adding 600,001 units per month would be the most efficient way to increase overall monthly capacity and address the bottleneck.

Question 3

During the sales life cycle,which is an example of what happens during the maturity phase?

Accepted Answer

During the maturity phase, sales growth slows down and may even begin to decline while the number of competitors and product variety decrease. This is because the market becomes saturated, and most potential customers have already purchased the product or service. The focus shifts from acquiring new customers to retaining existing ones.

Question 4

Bryan Inc.produces a specialty top-quality juice machine.The product,the JM50,requires four processes to be completed.Specifically,these processes are exterior construction,pulp filter insertion,painting,and packaging.Each process is performed at separate workstations with different completion rates:
Exterior construction can manufacture 100,000 juicer exteriors per day.
Pulp filter insertion can install 25,000 filters every 6 hours.
Painting can decorate 3,000 juicers every half hour.
Packaging can package 5,000 juicers per hour.
The plant operates 24/7,24 hours a day every day of the week.
What cost management technique does this case illustrate?

Accepted Answer

This case illustrates the Theory of Constraints (TOC), which is a cost management technique used to identify the bottleneck in a production process and optimize it to increase overall throughput. In this case, the bottleneck is the slowest process, which is pulp filter insertion that can only install 25,000 filters every 6 hours. By identifying and optimizing this bottleneck, the overall production throughput can be increased.

Question 5

Quality Chairs Inc.(QC)manufactures chairs for industrial use.Laura Winters,the Vice President for Marketing at QC,concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors.QC's chairs sold for $550 whereas the competition's comparable chair was selling for $495.Winters determined that a price drop to $495 would be necessary to regain market share and annual sales of 10,000 chairs.
Cost data based on sales of 10,000 chairs: 
The current cost per unit is:

Accepted Answer

The answer of Quality Chairs Inc.(QC)manufactures chairs for industrial use.Laura...

Question 6

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

The answer of Which of the following is a common...

Question 7

Place the five steps in implementing a target costing approach in the proper order:
1 - Determine desired profit
2 - Use kaizen costing and operational control to reduce costs
3 - Determine the market price
4 - Use value engineering to identify ways to reduce product costs
5 - Calculate the target cost at market price less desired profit

Accepted Answer

The correct sequence for implementing a target costing approach starts with determining the market price (3), then determining the desired profit (1), calculating the target cost by subtracting the desired profit from the market price (5), using value engineering to identify ways to reduce product costs (4), and finally using kaizen costing and operational control to reduce costs further (2).

Question 8

Target cost can be defined as:

Accepted Answer

Target cost is defined as the competitive price minus the desired profit. This approach helps companies determine the maximum cost they can afford in designing, producing, and selling a product while still achieving the desired profit margin.

Question 9

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

Accepted Answer

During the growth phase, sales increase rapidly along with an increase in product variety. This is the stage where the product gains wider acceptance and more customers become aware of its benefits, leading to an increase in demand. To meet this demand, companies often introduce new variations of the product or expand into new markets. The number of competitors may also increase during this phase, but the overall market size is large enough to sustain growth.

Question 10

Quality Chairs Inc.(QC)manufactures chairs for industrial use.Laura Winters,the Vice President for Marketing at QC,concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors.QC's chairs sold for $550 whereas the competition's comparable chair was selling for $495.Winters determined that a price drop to $495 would be necessary to regain market share and annual sales of 10,000 chairs.
Cost data based on sales of 10,000 chairs: 
If the profit per unit is maintained,the target cost per unit is:

Accepted Answer

The answer of Quality Chairs Inc.(QC)manufactures chairs for industrial use.Laura...

Question 11

Electronic Component Company is a producer of high-end video and music equipment.ECC currently sells its top of the line "ECC" DVD player for a price of $250.It costs ECC $210 to make the player.ECC's main competitor is coming to market with a new DVD player that will sell for a price of $220.ECC feels that it must reduce its price to $220 in order to compete.The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%.ECC currently sells 200,000 DVD players per year.
Irrespective of the competitor's price,what is EEC's required selling price if the target profit is 25% of sales and current costs cannot be reduced?

Accepted Answer

Even if the competitor reduces their price, ECC cannot reduce their current costs. Therefore, in order to achieve a target profit of 25% of sales, ECC must increase their selling price. Using the formula (cost/(100%-target profit)), we get ($210/(100%-25%)) = $280 as the required selling price. Option A is the closest to this amount, making it the best choice.

Question 12

Quality Chairs Inc.(QC)manufactures chairs for industrial use.Laura Winters,the Vice President for Marketing at QC,concluded from market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors.QC's chairs sold for $550 whereas the competition's comparable chair was selling for $495.Winters determined that a price drop to $495 would be necessary to regain market share and annual sales of 10,000 chairs.
Cost data based on sales of 10,000 chairs: 
The current profit per unit is:

Accepted Answer

The answer of Quality Chairs Inc.(QC)manufactures chairs for industrial use.Laura...

Question 13

Electronic Component Company is a producer of high-end video and music equipment.ECC currently sells its top of the line "ECC" DVD player for a price of $250.It costs ECC $210 to make the player.ECC's main competitor is coming to market with a new DVD player that will sell for a price of $220.ECC feels that it must reduce its price to $220 in order to compete.The sales and marketing department of ECC believes the reduced price will cause sales to increase by 15%.ECC currently sells 200,000 DVD players per year.
Assuming sales and marketing are not correct in their estimation and the volume of sales is not changed and ECC meets the competitive price,what is the target cost if ECC wants to maintain its same income level?

Accepted Answer

If ECC wants to maintain its same income level, it needs to reduce its cost per unit to match the competitor's price while still making the same profit. Therefore, the target cost would be $180 per unit ($220 selling price - $40 profit per unit). This means that ECC would need to reduce its cost of production from $210 to $180 per unit in order to maintain its same income level. Therefore, the correct answer is D, $180.

Question 14

Which of the following is the speed at which units must be manufactured to meet customer demand?

Accepted Answer

Takt time is the rate at which units must be produced to meet customer demand. It is calculated by dividing the available production time by the customer demand. Production time (A) and manufacturing time (B) are related to the time taken to produce a unit, but they do not necessarily directly relate to customer demand. Throughput time (D) refers to the total time it takes for a unit to move through the production process, from raw materials to finished product, and is not specific to meeting customer demand.

Question 15

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

Accepted Answer

During the introduction phase, sales rise slowly as customers become aware of the new product or service. Product variety is limited as the focus is on perfecting the offering before expanding the line. This is when companies invest in marketing and advertising to create product awareness and generate demand. As a result, sales are typically low at this stage.

Question 16

Place the phases of the cost life cycle (value chain)in the correct order from upstream to downstream activities.

Accepted Answer

The correct order of the cost life cycle phases (value chain) is R&D, Design, Manufacturing, Marketing & Distribution, and Customer Service. This is because R&D comes first to develop the idea, followed by design to create the actual product, then manufacturing to produce and assemble it. Next, marketing and distribution activities promote and sell the product, while customer service activities support and assist customers after purchase. Therefore, option D correctly represents the upstream to downstream order of activities in the cost life cycle.

Question 17

When comparing Activity-based costing (ABC)and the Theory of Constraints (TOC),the approach each method takes toward profitability analysis is:

Accepted Answer

TOC (Theory of Constraints) focuses on identifying and managing the bottleneck in a process to improve throughput, which is often considered a more short-term approach to increasing profitability. On the other hand, ABC (Activity-based Costing) involves a detailed analysis of costs associated with activities, aiming to provide insights for long-term strategic decisions, thus taking a long-term approach to profitability analysis.

Question 18

Which of the following is a common type of value engineering in which the performance and cost of each major function or feature of the product is examined?

Accepted Answer

Functional analysis is a type of value engineering where the performance and cost of each major function or feature of the product is examined. The goal is to identify and eliminate any unnecessary functions or features and optimize the performance and cost of the remaining ones.

Question 19

Which of the following phases are included in the sales life cycle?

Accepted Answer

The answer of Which of the following phases are included...

Question 20

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

Since labor hours are over budget, reducing the cost of direct labor would help to reach the target cost. Materials, machine setups, and mechanical assembly costs are all under budget, so focusing on those areas would not have as much of an impact on reducing costs.

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

During the sales life cycle,which is an example of what happens during the maturity phase?

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?

Target cost can be defined as:

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

Which of the following is the speed at which units must be manufactured to meet customer demand?

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

Place the phases of the cost life cycle (value chain) in the correct order from upstream to downstream activities.

When comparing Activity-based costing (ABC) and the Theory of Constraints (TOC) ,the approach each method takes toward profitability analysis is:

Which of the following is a common type of value engineering in which the performance and cost of each major function or feature of the product is examined?

Which of the following phases are included in the sales life cycle?

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