Deck 13: Joint Management of Revenues and Costs

Question 1

Kaizen costing and target costing are two names for the same thing.

Answer 1

False

Question 2

Target costing works best when production processes are simple, rather than complex.

Answer 2

False

Question 3

The supply chain involves suppliers, but not customers.

Answer 3

False

Question 4

Activities in the value chain are classified as value-added or non-value-added in many organizations.

Question 5

Life cycle costing is an alternative to job order and process costing.

Question 6

Because inventory level information is in a company's internal accounting records, suppliers cannot access it.

Question 7

Target costing involves not only cost, but also product quality and functionality.

Question 8

Kaizen costing relies on price forecasts.

Question 9

Kaizen costing is concerned with continuous improvement in product cost, quality, and functionality.

Question 10

Life cycle costing is incompatible with activity-based costing.

Question 11

Life cycle costing is used when a product is initially sold at a high profit.

Question 12

An organization's value chain often includes suppliers and customers.

Question 13

The decisions made during the design phase affect a large portion of product and manufacturing process costs. Therefore, target costing focuses on the design phase.

Question 14

Target costing is a technique to improve long-term profitability by considering product costs at the design phase.

Question 15

Kaizen costing is a technique aimed at improvement of short-term profitability.

Question 16

Life cycle costing considers cash flows over the entire life of products that have high development or decommissioning costs.

Question 17

A target cost is the minimum cost a company should strive for to obtain its desired profit margin.

Question 18

Life cycle costing focuses on costs incurred in production, but not on those incurred when an operation is closed down and requires costly cleanup activities.

Question 19

In kaizen costing, after targeted cost reduction goals are set, each department is assigned responsibility for specific cost reduction amounts.

Question 20

A value chain is the sequence of business processes in which value is added to a product or service.

Question 21

Managers often break activities into four groups for value chain analysis. Which of the following is not an activity category among those four groups?

A) Unnecessary activities that cannot be eliminated
B) Necessary activities that could be changed to improve the process
C) Necessary activities that cannot be improved upon at this time
D) Unnecessary activities that can be eliminated quickly

Question 22

A value chain is the sequence of business processes in which

A) Costs are determined with activity-based principles
B) Value is added to a product or service
C) All non-value-added activities are eliminated
D) Managers determine prices

Question 23

Lean accounting is accounting for organizations that are operating smoothly.

Question 24

In cost-based pricing, managers must use only variable costs in the cost base.

Question 25

In an economic downturn, a problem with cost-based pricing is a potential death spiral.

Question 26

Implementing a wireless network to reduce non-value added paperwork and improve inventory tracking would result most directly from

A) Target costing
B) Kaizen costing
C) Value chain analysis
D) Life cycle budgeting

Question 27

An organization's value chain can incorporate its I. Own customers
II) Own suppliers
III) Customers' customers
IV) Suppliers' suppliers

A) I and II
B) I and III
C) II and IV
D) I, II, III, and IV

Question 28

Market-based prices are typically based on some measure of customer demand.

Question 29

Predatory pricing is illegal in the United States.

Question 30

Which of the following activities is unique to a manufacturing organization's value chain?

A) Distribution management
B) Customer service
C) Product manufacture
D) Marketing and sales

Question 31

Which of the following immediately follows product and process design in the typical manufacturing value chain?

A) Research and development
B) Supplier and raw material management
C) Distribution management
D) Marketing and sales

Question 32

Which of the following activities is not typically considered to be part of a manufacturing organization's value chain?

A) Making journal entries
B) Handling customer complaints
C) Designing and engineering new products
D) Manufacturing products

Question 33

Peak load pricing refers to the illegal practice of charging different prices at different times to reduce capacity constraints.

Question 34

To establish a cost-based price, managers need data on consumer demand.

Question 35

A penetration price is the price charged for transactions that take place within a single organization.

Question 36

Lean accounting supports continuous improvement.

Question 37

Market-based prices are influenced by product differentiation and competition.

Question 38

Lean accounting is used with a demand-push system of production.

Question 39

Not-for-profit organizations price products in the same manner as for-profit organizations.

Question 40

In cost-based pricing, markup percentages often originate from general industry practice.

Question 41

In target costing, managers can

A) Focus on motivating customers to pay a higher price
B) Push some cost reductions to suppliers
C) Try to establish their product as a commodity
D) Justify higher costs by making production processes more complex

Question 42

Rebekah is an accountant for CHC Corporation. Her boss has asked her to participate in a target costing project for a pen that will write upside down. Which of the following information sources would Rebekah use to determine a competitive price?

A) Consumer surveys
B) Reverse-engineering reports
C) Life cycle costing analyses
D) Rebekah does not need to determine a competitive price because the project is focused on a target cost

Question 43

Consumer surveys, focus groups, and market research are

A) Value-added activities.
B) Information sources for target costing projects.
C) Always part of a company's value chain.
D) Information sources for cost-based pricing.

Question 44

Kaizen costing relies on

A) Sales forecasts of prices and volumes
B) Commodity markets
C) Zero-based budgeting processes
D) Classification based on cost behavior

Question 45

Target costing is most likely to be successful when the

A) Manufacturer is solely responsible for managing costs
B) Product is a commodity
C) Production process is complex
D) Managers and accountants make all of the decisions

Question 46

Which of the following steps occurs first in a target costing design cycle?

A) Evaluate feasibility using a pilot project.
B) Make product design choices to achieve the target cost.
C) Determine the target cost.
D) Determine product target price, quality, and functionality.

Question 47

Managers can achieve planned cost reductions in a kaizen costing system through I. Value chain analysis
II) Gain-sharing programs with employees
III) Supply chain analysis

A) I and II
B) I and III
C) II and III
D) I, II, and III

Question 48

Life-cycle costing is a

A) Decision-making method that considers costs from the time the product is introduced through a number of years
B) Decision-making method that considers a target cost
C) Decision-making method that considers improvements in cost and quality over a product's life
D) Pricing method based on demand

Question 49

Kaizen costing is

A) Another name for target costing
B) Focused only on cost reduction
C) Continuous improvement in cost, quality, and functionality
D) A method for budgeting

Question 50

Which of the following terms is typically associated with just-in-time systems?

A) Demand-push system
B) Manufacturing cells
C) Non-value-added activities
D) Linear regression

Question 51

Kaizen costing is similar to a budget except that kaizen costing

A) Does not use dollar amounts
B) Cannot be implemented in service organizations
C) Requires the use of the high-low method to forecast revenues
D) Provides for explicit cost reductions

Question 52

The Internet can often give suppliers information about their customers' inventory levels. Suppliers can then use this information to I. Time deliveries to their customers
II) Improve their own production planning
III) Prepare financial statements

A) I and II
B) II and III
C) I and III
D) I, II, and III

Question 53

After establishing a target cost for a product or service, managers assemble a product design team. The product design team usually comprises I. Product engineers
II) Marketing personnel
III) Accountants

A) I and II
B) I and III
C) II and III
D) I, II, and III

Question 54

Kaizen costing concepts can be applied to

A) Variable costs only
B) Fixed costs only
C) Both variable and fixed costs
D) Mixed costs only

Question 55

Which of the following industries is least likely to implement target costing?

A) Food products and beverages
B) Heavy equipment manufacturers
C) Car manufacturers
D) Bicycle manufacturers

Question 56

If WDY is successful in achieving its kaizen goal, the reduced nonmanufacturing cost (i.e., the cost excluding the product cost) per unit will be

A) $47.60
B) $28.56
C) $19.04
D) $20.40

Question 57

Under kaizen costing, accountants forecast

A) Declining prices and establish cost reduction goals to maintain a desired profit margin
B) Cost reduction goals and desired profit margins, then adjust prices accordingly
C) Declining profit margins and establish revenue and cost goals to meet them
D) Increasing profit margins and establish revenue and cost goals to meet them

Question 58

FRM Corporation's managers have recently introduced new, more efficient equipment for feeding chickens. Under which of the following assumptions would life cycle costing be best applied?

A) The product is being sold at a loss
B) The product is being sold at a small profit
C) The product is being sold at a loss, but expected to add to profits over time
D) The product is being sold at a small profit, which is expected to decline over time

Question 59

Which of the following is not typically associated with successful implementation of just-in-time (JIT) systems?

A) Find high quality suppliers
B) Locate suppliers with short transit times
C) Use as many suppliers as possible to minimize the risk of non-delivery
D) Develop management commitment to the JIT process

Question 60

When does kaizen costing typically occur?

A) Before the product has been designed
B) After the product has been designed, but before the first production cycle is complete
C) After the product has been designed and after the first production cycle is complete
D) After the first production cycle is complete, but before the product has been designed

Question 61

Charging different prices at different times to reduce capacity constraints is called

A) Penetration pricing
B) Transfer pricing
C) Peak load pricing
D) Price skimming

Question 62

The Internet is likely to

A) Decrease price elasticity of demand because transactions are numerous and quick
B) Have no impact on price elasticity of demand because few people do business on the Internet
C) Increase price elasticity of demand because of the availability of substitute products
D) Decrease price elasticity of demand because of the availability of complementary products

Question 63

Use the following information for the next 2 questions.
TTV Corporation's managers estimate that a 50% increase in price would cause an 80% reduction in the quantity of product sold. Total fixed costs for the product are $5,000 and total variable costs are $4,000, based on production of 400 units. The following values may be useful:
TTV's price elasticity of demand is

A) -3.973
B) -0.252
C) +0.322
D) +3.108

Question 64

Managers determine what a customer is willing to pay for a product or service under which one of these pricing method?

A) Market-based
B) Cost-based
C) Activity-based
D) Life cycle

Question 65

Life cycle costing can be used to focus managers' attention on I. Development costs
II) Decommissioning costs
III) Marketing costs

A) I and II
B) I and III
C) II and III
D) I, II and III

Question 66

A major drawback of cost-based pricing is that it

A) Ignores the full cost of a product
B) Ignores the relationship between customer demand and price
C) Ignores variable costs and includes only fixed costs
D) Can be used only when all costs have been incurred

Question 67

Life cycle costing can be used to identify unprofitable products due to high costs at the end of a product's life. Which of the following is the best example of such a product?

A) Nuclear reactors
B) Cherry orchards
C) CPA firms
D) Universities

Question 68

Which of the following factors affect a product's profit-maximizing price? I. Fixed costs
II) Price elasticity of demand
III) Variable costs

A) I and III
B) II and III
C) I and II
D) I, II, and III

Question 69

Market-based prices are least likely to be influenced by

A) The degree of product differentiation
B) Competition
C) Whether or not the product is a commodity
D) The cost to produce the product

Question 70

Use the following information for the next 2 questions.
TTV Corporation's managers estimate that a 50% increase in price would cause an 80% reduction in the quantity of product sold. Total fixed costs for the product are $5,000 and total variable costs are $4,000, based on production of 400 units. The following values may be useful:
TTV's profit maximizing price is

A) $2.44
B) $3.37
C) $7.57
D) $13.36

Question 71

Which of the following formulas calculates the profit-maximizing price?

A) Total variable cost + total fixed cost
B) (Total variable cost + total fixed cost) / price elasticity of demand
C) Variable cost × [elasticity / (elasticity + 1)]
D) Total cost × [elasticity / (elasticity + 1)]

Question 72

Which of the following is the main disadvantage of market-based pricing?

A) Difficulty in estimating market demand and prices
B) Subjectivity of market demand
C) Inability to operate profitably
D) Tendency to make poor decisions relative to cost-based pricing

Question 73

When an organization using market-based prices cannot differentiate its product due to extensive competition, the product

A) Is considered a commodity
B) Is considered a regulated price
C) Involves more non-value-added activities than value-added activities
D) Cannot be sold at a profit

Question 74

The most commonly used pricing method in the United States is

A) Market-based pricing
B) Life cycle pricing
C) Zero-based pricing
D) Cost-based pricing

Question 75

Although products are initially sold at a loss, under life cycle costing managers usually expect I. Sales volume increases for the product or related products over time
II) A shift to a commodity market over time
III) Cost reductions over time

A) I and II
B) II and III
C) I and III
D) I, II, and III

Question 76

Market-based prices are influenced by all of the following except

A) Customer demand
B) Product differentiation
C) Competition
D) Allocated costs

Question 77

Which of the following is a formal method for incorporating demand into prices?

A) Cost-based pricing
B) Market-based pricing
C) Price elasticity of demand
D) Price elasticity of supply

Question 78

The "death spiral" may be a problem when managers use

A) Market-based prices
B) Cost-based prices
C) Profit-maximizing prices
D) Regulated prices

Question 79

Which of the following formulas calculates price elasticity of demand?

A) ln (1 + % change in quantity sold) / ln (1 + % change in price)
B) (1 + % change in quantity sold) / (1 + % change in price)
C) % change in quantity sold / % change in price
D) ln (1 - % change in quantity sold) / ln (1 - % change in price)

Question 80

Market-based prices are normally determined using some measure of

A) Supplier prices
B) Supplier demand
C) Customer demand
D) Degree of governmental regulation