Question 1

Which of the following is a possible cause of a firm's reluctance to implement activity-based management (ABM)?
I Employee resistance to change
Ii)Lack of understanding of the benefits of ABM.
Iii)Significant resources required.iv.Focus is on value-added activities.

Accepted Answer

Employee resistance, lack of understanding, and significant resources required are common barriers to implementing ABM. Focusing on value-added activities is a benefit, not a cause of reluctance.

Question 2

Which of the following activities are non-value-added activities?
i.Inspect work in process
ii.Process sales orders
iii.Repair drilling machine
iv.Move raw material to the work station

Accepted Answer

Inspecting work in process, repairing a drilling machine and moving raw materials to the work station are non-value-added activities as they do not add any value to the final product or service. Processing sales orders, on the other hand, is a value-added activity as it directly contributes to that final product or service.

Question 3

If the target selling price is $120 and the target profit margin is a 40 per cent mark-up on cost,what is the target cost?

Accepted Answer

We can use the formula:

Target Cost = Target Selling Price - (Target Selling Price x Target Profit Margin)

where Target Profit Margin is the mark-up percentage on cost.

Target Selling Price = $120

Target Profit Margin = 40% mark-up on cost = 0.4

Target Cost = $120 - ($120 x 0.4)
Target Cost = $120 - $48
Target Cost = $72

Therefore, the target cost is $72, which corresponds to choice letter B.

Question 4

Which of the following do conventional costing systems ignore?
i.Production costs
ii.Design costs
iii.Development costs
iv.Marketing and customer service costs

Accepted Answer

Conventional costing systems typically focus on production costs and often ignore non-manufacturing costs such as design, development, marketing, and customer service costs.

Question 5

Which of the following activities are value-added activities?
i.Preventive maintenance
ii.Repairs to machinery
iii.Move work-in-process inventory between machines
iv.Process receivables

Accepted Answer

Preventive maintenance is a value-added activity as it helps prevent unexpected breakdowns which can cause delays and increase costs. Process receivables is also a value-added activity as it helps generate revenue for the company. Repairs to machinery and moving work-in-process inventory between machines can be considered necessary activities, but they do not directly add value to the end product or service.

Question 6

Carwell has introduced a new product with a target price of $150 and a target cost of $90.What is the target percentage margin on sales?

Accepted Answer

The answer of Carwell has introduced a new product with...

Question 7

Cartel Ltd has introduced a new product with a target price of $240 and a profit requirement of 33.3 per cent on sales.What is the target cost?

Accepted Answer

The answer of Cartel Ltd has introduced a new product...

Question 8

The following steps are required to implement business process re-engineering.i.Establish goals
Ii)Reorganise work flow
Iii)Prepare a business process map
Iv)Implementation
What is the correct order for these steps?

Accepted Answer

The first step in implementing business process re-engineering is to establish goals, followed by preparing a business process map, reorganizing work flow, and finally, implementing the changes. So, the correct order for these steps is iii, i, ii, and iv. Choice C is the only option that follows the correct sequence.

Question 9

A systematic approach in analysing the product and process design,with the aim of eliminating any non-value-added elements,to achieve the target cost is known as:

Accepted Answer

The systematic approach of analysing product and process design with the aim of eliminating non-value-added elements is known as value engineering. Value engineering is often used to achieve the target cost of a product or service, and it involves looking at all aspects of the design to identify opportunities for cost savings without compromising quality or functionality. Component level target costs, strategic cost reduction, and cost reduction objectives are all related concepts, but they do not specifically refer to the systematic approach of value engineering.

Question 10

Beaufort Ltd is introducing a new range of products.It has established that the target selling prices of the three products are $120,$150 and $210.Beaufort requires a profit mark-up on cost of 33.3 per cent for all its products.What percentage of the target prices is the target cost in each case?

Accepted Answer

The answer of Beaufort Ltd is introducing a new range...

Question 11

Which of the following are considerations in determining a target selling price?
i.Customer expectations
ii.Competitors' actions
iii.Product cost
iv.Strategic objectives

Accepted Answer

Customer expectations and competitors' actions are important factors to consider in determining the target selling price as they can influence the demand for the product. Product cost is also a crucial consideration as it determines the minimum price at which the product can be sold while still covering costs. Strategic objectives are also important as they can affect the pricing strategy chosen, such as whether to focus on market share or profitability. Therefore, options i, ii, and iv are all important considerations in determining a target selling price.

Question 12

In the process of target costing,where is the concentration of effort required to have the greatest impact on cost savings?
i.Product design
ii.Process design
iii.Production costs
iv.After sales costs

Accepted Answer

The greatest impact on cost savings in target costing is achieved through product design and process design, as decisions made during these stages significantly influence the overall costs.

Question 13

Orwell is about to introduce a new product and has established a target cost of $144 and a target margin on sales of 40 per cent.What is the target price?

Accepted Answer

Target price can be calculated using the following formula:
Target price = Target cost / (1 - Target margin percentage)
= $144 / (1 - 40%)
= $144 / 0.6
= $240

Question 14

Which of the following statements is/are false?
i.Determining the cause of non-value-added activities requires cost driver analysis
ii.Building activities into processes will quickly identify the causes of non-value-added activities.
iii.Identifying root cause cost drivers is sufficient to enable non-value-added activities to be eliminated.

Accepted Answer

ii is false because building activities into processes may not quickly identify the causes of non-value-added activities; it's a more complex process involving analysis and understanding of the activities. iii is false because identifying root cause cost drivers, while important, is not alone sufficient to enable non-value-added activities to be eliminated; action must be taken based on that identification.

Question 15

When we consider the life cycle sequence of a product,the majority of costs for a typical product have been committed by the end of:

Accepted Answer

The majority of costs for a typical product are committed during the design and development phase, which includes research and development, product design, and testing. By the time a product reaches the production phase, most of the decisions about its design and features have already been made, and the production process involves mainly implementation and assembly. Customer support may incur additional costs, but they are typically a smaller part of the product life cycle budget. Product planning is an early stage in the process where the idea for the product is identified and evaluated, but little or no costs are committed yet.

Question 16

Given the current design and resources,the cost that a new product could be manufactured for,including upstream and downstream costs,is known as:

Accepted Answer

The answer of Given the current design and resources,the cost...

Question 17

Which of the following are possible root-cause cost drivers?
i.Complexity
ii.Defects produced
iii.Plant layout
iv.Inadequate employee training

Accepted Answer

All the options listed (Complexity, Defects produced, Plant layout, Inadequate employee training) can be root-cause cost drivers in a business, as they all can lead to increased costs through inefficiencies, errors, or delays.

Question 18

Which of the following are key features of target costing?
i.Cross functionality
ii.Market price driven
iii.Focus on customer value
iv.Based on life cycle management

Accepted Answer

Target costing involves cross-functional efforts, is driven by market prices, focuses on delivering customer value, and considers the entire life cycle of a product to manage costs effectively.

Question 19

The following four tasks take place in the concept known as target costing.i.Value engineering
Ii)Establish a target price
Iii)Establish a target cost
Iv)Establish a target profit
Which of the following correctly depicts the sequence of these tasks?

Accepted Answer

The correct sequence in target costing is to first establish a target price, then establish a target profit, followed by establishing a target cost, and finally, perform value engineering to meet the target cost.

Question 20

Which of the following statements about re-engineering is/are true?
i.Re-engineering is the complete redesign of a process in an attempt to find new creative ways to accomplish objectivity
ii.Re-engineering involves more of a 'giant leap' then the concept of activity-based management.
iii.Re-engineering may entail high risks.

Accepted Answer

Re-engineering involves a complete redesign of processes (i), often requires significant changes or 'giant leaps' compared to incremental improvements like activity-based management (ii), and can involve high risks due to the scale and scope of changes (iii).

Quiz 16: Managing Costs and Quality

Which of the following is a possible cause of a firm's reluctance to implement activity-based management (ABM) ? I Employee resistance to change Ii) Lack of understanding of the benefits of ABM. Iii) Significant resources required.iv.Focus is on value-added activities.

Which of the following activities are non-value-added activities? i.Inspect work in process ii.Process sales orders iii.Repair drilling machine iv.Move raw material to the work station

If the target selling price is $120 and the target profit margin is a 40 per cent mark-up on cost,what is the target cost?

Which of the following do conventional costing systems ignore? i.Production costs ii.Design costs iii.Development costs iv.Marketing and customer service costs

Which of the following activities are value-added activities? i.Preventive maintenance ii.Repairs to machinery iii.Move work-in-process inventory between machines iv.Process receivables

Carwell has introduced a new product with a target price of $150 and a target cost of $90.What is the target percentage margin on sales?

Cartel Ltd has introduced a new product with a target price of $240 and a profit requirement of 33.3 per cent on sales.What is the target cost?

The following steps are required to implement business process re-engineering.i.Establish goals Ii) Reorganise work flow Iii) Prepare a business process map Iv) Implementation What is the correct order for these steps?

A systematic approach in analysing the product and process design,with the aim of eliminating any non-value-added elements,to achieve the target cost is known as:

Beaufort Ltd is introducing a new range of products.It has established that the target selling prices of the three products are $120,$150 and $210.Beaufort requires a profit mark-up on cost of 33.3 per cent for all its products.What percentage of the target prices is the target cost in each case?

Which of the following are considerations in determining a target selling price? i.Customer expectations ii.Competitors' actions iii.Product cost iv.Strategic objectives

In the process of target costing,where is the concentration of effort required to have the greatest impact on cost savings? i.Product design ii.Process design iii.Production costs iv.After sales costs

Orwell is about to introduce a new product and has established a target cost of $144 and a target margin on sales of 40 per cent.What is the target price?

When we consider the life cycle sequence of a product,the majority of costs for a typical product have been committed by the end of:

Given the current design and resources,the cost that a new product could be manufactured for,including upstream and downstream costs,is known as:

Which of the following are possible root-cause cost drivers? i.Complexity ii.Defects produced iii.Plant layout iv.Inadequate employee training

Which of the following are key features of target costing? i.Cross functionality ii.Market price driven iii.Focus on customer value iv.Based on life cycle management

The following four tasks take place in the concept known as target costing.i.Value engineering Ii) Establish a target price Iii) Establish a target cost Iv) Establish a target profit Which of the following correctly depicts the sequence of these tasks?