Ch.8 – Exam Prep – Measuring and Managing Innovation and - Management Accounting Info 7e - Chapter Test Questions by Atkinson A. Atkinson. DOCX document preview.
Chapter 8
Measuring and Managing Innovation
and Life-Cycle Costs
Learning Objectives―Coverage by question type
LO1 – Describe the total-life-cycle costing approach for managing product costs.
True / False Multiple Choice Exercises, Problems & Short Answer
1-6 1-12 1, 2
LO2 – Explain target costing.
True / False Multiple Choice Exercises, Problems & Short Answer
7-12 13-24 3-5
LO3 – Compute target costs.
True / False Multiple Choice Exercises, Problems & Short Answer
13, 14 25-31 6-8
LO4 – Calculate the breakeven time for a new product development project.
True / False Multiple Choice Exercises, Problems & Short Answer
15, 16 32, 33 9, 10
LO5 – Select nonfinancial measures for product development processes.
True / False Multiple Choice Exercises, Problems & Short Answer
17, 18 34, 35 11
LO6 – Identify environmental costing issues.
True / False Multiple Choice Exercises, Problems & Short Answer
19 36 12
Chapter 8: Measuring and Managing Innovation and Life-Cycle Costs
True / False
LO1
Terms: Total-life-cycle costing
Difficulty: 1
- Total-life-cycle costing manages costs along the entire value chain.
Difficulty: 2
- Deciding how to allocate organizational resources over a product's life cycle is primarily determined during the manufacturing stage.
Difficulty: 1
- A product can have an initial-stage life-cycle cost that is relatively high, but a manufacturing cost that is relatively low.
Difficulty: 1
- As much as 80-85% of a product's total life costs are the result of decisions made in the research development and engineering stage of the product's life.
Difficulty: 2
- To be profitable, a company must generate revenues to cover costs incurred throughout the entire value chain.
Difficulty: 2
- The post-sale service and disposal stage is distinct from the manufacturing stage.
Difficulty: 1
- In traditional costing, the company attempts to achieve a particular cost target.
Difficulty: 2
- Target costing starts by estimating expected product costs.
Difficulty: 1
- Suppliers play a key role in the success of target costing.
Difficulty: 1
- Supply chain management may result in buyers and suppliers sharing information about each other's companies.
Difficulty: 1
- Guiding the target costing process is a cross-functional team made up of individuals from within and from outside the organization.
Difficulty: 1
- 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.
Difficulty: 1
- 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.
Difficulty: 1
- Target costing is a comprehensive approach to profit planning and cost management.
Difficulty: 1
- 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
Difficulty: 2
- Breakeven time brings together only two elements: R&D and profitability.
Difficulty: 2
- 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.
Difficulty: 1
- The objective to reduce product development time can be measured by the number of products delivered on time.
Difficulty: 1
- Environmental costing computes the cost effects an organization has on the environment.
Difficulty: 1
- By some estimates, 80% to 85% of a product's total life costs are committed by decisions made during the ________ stage.
A) research, development, and engineering
B) manufacturing
C) post-sale service and disposal
D) operating
Difficulty: 1
- 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.
Difficulty: 1
- 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.
Difficulty: 1
- For most products, the majority of the product's total life costs are incurred during the:
A) research, development, and engineering stage.
B) manufacturing stage.
C) post-sale service and disposal stage.
D) operating stage.
Difficulty: 2
- 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 stage.
Difficulty: 1
- 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 stage.
C) part of product development.
D) an iterative process over the life of the product.
Difficulty: 1
- 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.
Difficulty: 2
- The post-sale service and disposal stage of total-life-cycle costing consists of the following substages:
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.
Difficulty: 1
- An understanding of total-life-cycle costs can lead to:
A) additional costs during the manufacturing stage.
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.
Difficulty: 1
- 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
Difficulty: 1
- The substage of the research development and engineering stage 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.
Difficulty: 1
- The best chance of incorporating engineering flexibility into products and services is during the:
A) research, development, and engineering stage.
B) manufacturing stage.
C) post-sale service and disposal stage.
D) operating stage.
Difficulty: 1
- 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
Difficulty: 1
- ___________ 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
Difficulty: 1
- ____________ 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
Difficulty: 2
- 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.
Difficulty: 2
- 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.
Difficulty: 2
- 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.
Difficulty: 1
- Traditional costing begins with:
A) the research development and engineering stage.
B) marketing research.
C) target costing.
D) product specification.
Difficulty: 2
- 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.
Difficulty: 2
- 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
Difficulty: 1
- 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.
Difficulty: 1
- Target costing is:
A) customer-driven.
B) value-driven.
C) engineering-driven.
D) market-driven.
Difficulty: 1
- According to the total life cycle concept, minimizing the cost of ownership of a product over its useful life me
Difficulty: 2
- What are target sales revenues?
A) $1,920,000
B) $4,000,000
C) $2,400,000
D) None of the above is correct.
Difficulty: 2
- What is the target profit margin?
A) $480,000
B) $600,000
C) $384,000
D) $360,000
Difficulty: 3
- What is the target cost?
A) $1,800,000
B) $1,920,000
C) $2,520,000
D) $2,016,000
Difficulty: 3
- What is the target cost for each interior door?
A) $ 96
B) $116
C) $120
D) $ 90
Difficulty: 2
- 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)
Difficulty: 2
- 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
Difficulty: 3
- 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
Difficulty: 1
- 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.
Difficulty: 1
- 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.
Difficulty: 2
- 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
Difficulty: 2
- Which of the following could be used to measure the objective of reducing product development 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
Difficulty: 2
- 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
Difficulty: 2
- Identify and explain each of the three major stages of the total-life-cycle costing approach.
Difficulty: 2
- How does the total-life-cycle costing approach differ from traditional product costing? Explain.
Difficulty: 1
- How do traditional costing and target costing differ in determining the selling price of a product?
Difficulty: 1
- In target costing, what are at least two techniques used to achieve target costing goals?
Difficulty: 1
- What is the primary reason a firm would adopt target costing?
Difficulty: 2
- Brennan Beauty 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.
Target sales (60,000 units × $25) | $1,500,000 |
Less: Target Profit (35% × $25/unit × 60,000 units) | 525,000 |
Target cost for 60,000 units | $975,000 |
The unit target cost per unit ($975,000/60,000) | $16,25 |
Difficulty: 2
- Gwen Aveer, vice-president of Court Industries, a computer manufacturer in England, has been trying to figure out whether one of the branch managers, Lance Allot, has been achieving the company-wide return on sales target of 20 percent. Gwen has just been given data from the new target costing system regarding Lance’s operations. Lance’s annual sales volume is 30,000 computers with a selling price of $1,000. The data also show that Lance’s unit cost is $750 per unit.
Required:
a. Help Gwen determine whether Lance’s return on sales target has been met.
b. Has Lance done a good or a poor job? Explain.
Target Sales | − | Target Profit | = | Target Cost |
($1,000 × 30,000) | − | (RST × $1,000 × 30,000) | = | ($750 × 30,000) |
$30,000,000 | − | (RST × $30,000,000) | = | $22,500,000 |
Difficulty: 2
- Compare target costing and Kaizen costing.
Difficulty: 1
- Alpha 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.
Difficulty: 1
- What does the breakeven time (BET) metric for the product development process measure?
Difficulty: 2
- What are some nonfinancial measures that a company might use in order to motivate achieving the objective of anticipating future customer needs?
Difficulty: 1
- What is environmental costing?
Difficulty: 3
- Carter Corporation produces 200,000,000 units of Product X and 80,000,000 of Product Y with the following costs and machine hours.
Product X | Product Y | Total | |
Direct costs (material plus labor) | $18,000,000 | $ 8,000,000 | |
Environmental support | 28,000,000 | ||
Nonenvironmental support | 44,000,000 | 58,000,000 | |
Total support | $44,000,000 | $86,000,000 | $130,000,000 |
Total machine hours | 20,000,000 | 12,000,000 | 32,000,000 |
Required:
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.
Answer (costs per unit are rounded):
a. Applied support per machine hour $130,000,000/32,000,000 MH = $4.0625 per MH
Product X | Product Y | |
Direct costs (material plus labor) | $ 18,000,000 | $ 8,000,000 |
Applied support | ||
$4.0625 per machine hour | 81,250,000 | 48,750,000 |
Total costs | $ 99,250,000 | $56,750,000 |
Number of units | 200,000,000 | 80,000,000 |
Cost per unit | 0.50 | $0.71 |
Product X | Product Y | Product X Per Unit | Product Y Per Unit | |
Direct costs (material plus labor) | $ 18,000,000 | $ 8,000,000 | $0.09 | $0.10 |
Environmental support | 28,000,000 | 0.35 | ||
Nonenvironmental support | 44,000,000 | 58,000,000 | 0.22 | 0.73 |
Total support | $ 44,000,000 | $86,000,000 | $0.22 | $1.08 |
Total Costs | $ 62,000,000 | $94,000,000 | $0.31 | $1.18 |
Number of units | 200,000,000 | 80,000,000 | ||
Cost per Unit using ABC | $0.31 | $1.18 |
Document Information
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Management Accounting Info 7e - Chapter Test Questions
By Atkinson A. Atkinson
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