Question 1

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 2

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

Accepted Answer

During the maturity phase, sales continue to increase but at a decreasing rate. The number of competitors and product variety decline as the market becomes saturated and customers start to become loyal to particular brands. Prices may also start to decrease as competition decreases. This phase often signifies the peak of the product's popularity before it begins to decline in the saturation phase.

Question 3

Which function(s) is/are the bottleneck(s)?

Accepted Answer

The answer of Which function(s) is/are the bottleneck(s)?
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Question 4

If the profit per unit is maintained, the target cost per unit is:

Accepted Answer

The answer of If the profit per unit is maintained,...

Question 5

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 indicates that the product or service is gaining popularity and attracting more customers, leading to growth in sales. The increase in product variety also suggests that the company is expanding its offerings to cater to the growing demand.

Question 6

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

The bottleneck is the painting process, which can handle 3,000 juicers every half hour, equating to 6,000 juicers per hour. Over a 24-hour period, this amounts to 144,000 juicers per day, and over a 30-day month, this totals 4,320,000 juicers. The next slowest process is pulp filter insertion, capable of handling 100,000 juicers per month (25,000 every 6 hours, equating to 100,000 per day, or 3,000,000 per month). To shift the bottleneck, the painting process's capacity must exceed 3,000,000 juicers per month. The difference between the current painting capacity (4,320,000) and the next bottleneck (3,000,000) is 1,320,000. Therefore, to shift the bottleneck, an additional capacity slightly above this difference is needed, making the correct answer 1,320,001 juicers per month.

Question 7

The current profit per unit is:

Accepted Answer

The total cost is the sum of all actual costs given: $1,250,000 (Direct materials) + $875,000 (Direct labor) + $250,000 (Machine hours) + $125,000 (Finishing and packing) = $2,500,000. The cost per unit is $2,500,000 / 10,000 chairs = $250. Since the selling price is $495, the profit per unit is $495 - $250 = $245, which is not an option. However, the closest option to the calculated profit is $250, indicating a possible mistake in calculation or interpretation. Given the options and the context, the correct approach to find the profit per unit involves subtracting the cost per unit from the selling price, but the provided options and calculations do not align perfectly with the given data.

Question 8

What is the target cost if target profit is 20% of sales and ECC must meet the competitive price of $220?

Accepted Answer

To achieve a target profit of 20% of sales at the competitive price of $220, the target cost can be calculated as follows: $220 * (1 - 0.20) = $220 * 0.80 = $176. This means ECC should aim to reduce its cost to $176 per unit to meet the target profit margin.

Question 9

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 10

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 (value chain) is: R&D, Design, Manufacturing, Marketing & Distribution, and Customer Service. This is because the process starts with research and development, followed by design, then manufacturing, then marketing and distribution, and finally customer service.

Question 11

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

Accepted Answer

Takt time is the speed at which units must be manufactured to meet customer demand. It is calculated by dividing the available production time by customer demand. Production time (A) refers to the time it takes to manufacture a product, while manufacturing time (B) is a general term that can refer to any time spent in the manufacturing process. Throughput time (D) is the time it takes for a product to go through the entire manufacturing process, from start to finish.

Question 12

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

The answer of Assuming sales and marketing are not correct...

Question 13

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

To achieve a target profit of 25% of sales, ECC needs to sell the video player at a price where the cost ($210) is 75% of the selling price. Therefore, the selling price should be $210 / 0.75 = $280.

Question 14

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

Accepted Answer

During the introduction phase, sales typically rise slowly as customers become aware of the new product or service. The product variety is usually limited at this time.

Question 15

What cost management technique does this case illustrate?

Accepted Answer

This case illustrates the Theory of Constraints (TOC) as the production process has four different workstations with different completion rates. The slowest workstation limits the overall production rate, and the focus is on identifying and improving the bottleneck to increase overall efficiency.

Question 16

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 17

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

The answer of In order to reduce costs so as...

Question 18

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 19

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 20

The current cost per unit is:

Accepted Answer

The answer of The current cost per unit is:
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Quiz 13: Cost Planning for the Product Life Cycle: Target Costing, Theory of Constraints, and Strategic Pricing

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