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| 1 | |
After conducting a market research study,
Ambience Lighting Company decides to introduce a new lighting fixture to
complement its indoor lighting line. According to the estimates, the new fixture
has a target selling price of $40 and an estimated annual sales target of
100 000. Ambience Lighting has a 15% expected return on sales target. The allowable cost per unit is: |
| | A) | $40 |
| | B) | $12 |
| | C) | $24 |
| | D) | $34 |
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| 2 | |
Mobile Technology Company has designed a
product and the accompanying manufacturing processes that allow it to
generate a desired profit margin of 25% when the product is sold at an
estimated market-driven price of $250. This form of product costing is
termed: |
| | A) | activity-based costing |
| | B) | target costing |
| | C) | strategic cost management |
| | D) | strategic costing |
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| 3 | |
Whittlesea Beverage Company, a large producer and distributor of quality wines and spirits is currently experiencing high levels of competition, particularly price discounting. To remain competitive, to improve cost effectiveness and ultimately to reduce the company’s costs, Whittlesea’s management has implemented a new innovative management accounting project. It involves the investigation, understanding and management of the causes of costs through the identification of cost drivers and customer value and taking a process rather then functional perspective. Whittlesea Beverage Company is undertaking: |
| | A) | cost control |
| | B) | customer value accounting |
| | C) | cost management |
| | D) | value engineering |
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| 4 | |
James Wong, a consultant management accountant, is presenting a seminar on the benefits of implementing an activity-based management system at Sigmund Brothers, a manufacturer of high-quality furniture. Alicia Stanford, the management accountant employed by Sigmund Brothers, asked James to explain the difference between activity-based costing and activity-based management. James explained the difference in the following manner: |
| | A) | the difference between activity-based costing and activity-based management is in the way that the cost drivers are investigated |
| | B) | the difference between activity-based costing and activity-based management is in the way that activities are defined |
| | C) | the difference between activity-based costing and activity-based management is the method of calculating the cost of the cost objects such as products |
| | D) | the difference between activity-based costing and activity-based management is that activity-based management analyses the information generated from activity-based costing-information about activities, cost drivers and performance-to improve customer value and profitability |
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| 5 | |
A number of separate approaches under the umbrella term ‘contemporary cost management’ have evolved to manage costs, including: |
| | A) | activity-based management, process costing, cost estimation and target costing |
| | B) | activity-based management, business process re-engineering, lifecycle management and target costing |
| | C) | activity-based management, process costing, lifecycle management and target costing |
| | D) | activity-based management, business process re-engineering, budgeting and standard costing, and target costing |
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| 6 | |
Sigmund Brothers, a manufacturer of high-quality furniture, has implemented activity-based management in its manufacturing facility. Alicia Stanford, the management accountant employed by Sigmund Brothers, is currently investigating the identification of non-value-added activities. Which of the following are non-value-added activities? |
| | A) | Reprocessing invoices. |
| | B) | Reworking manufactured components. |
| | C) | Moving and storing inventory. |
| | D) | All of the given answers. |
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| 7 | |
Infinity Broadlooms Ltd has developed a
new fibre to be used in the manufacture of broadloom carpet. It is stain
resistant and can be cleaned with water-based cleaners without any damage to
the pile. The research and development process was more expensive than
Infinity’s management envisaged and the materials used in the production of
the fibre are also more expensive than forecast in the capital evaluation
phase. The managers are currently deciding whether to use a conventional
approach or a lifecycle approach to calculate the profitability of the new
fibre. The conventional approach to the profitability analysis of the fibre
follows: | Year 1 | Year 2 | Year 3 | Sales revenue | $300 000 | $600 000 | $100 000 | Less Cost of goods sold | | | | Direct materials | 75 000 | 150 000 | 25 000 | Direct labour | 90 000 | 180 000 | 30 000 | Applied manufacturing overhead | 30 000 | 60 000 | 10 000 |
In addition to these manufacturing costs,
the following upstream and downstream costs are also associated with the new
fibre: | Year 0 | Year 1 | Year 2 | Year 3 | Research and development | $100 000 | | | | Product design | 30 000 | | | | Process design | 10 000 | 2 000 | | | Tooling costs | 20 000 | | | | Marketing costs | 50 000 | 30 000 | 20 000 | 3 000 | Warranty claims | | 5 000 | 10 000 | 15 000 | After-sales service | | 2 000 | 15 000 | 3 000 |
The profitability of the new fibre using
the conventional approach is:
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| | A) | $105 000 |
| | B) | $210 000 |
| | C) | $315 000 |
| | D) | $350 000 |
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| 8 | |
Infinity Broadlooms Ltd has developed a
new fibre to be used in the manufacture of broadloom carpet. It is stain
resistant and can be cleaned with water-based cleaners without any damage to
the pile. The research and development process was more expensive than
Infinity’s management envisaged and the materials used in the production of
the fibre are also more expensive than forecast in the capital evaluation
phase. The managers are currently deciding whether to use a conventional
approach or a lifecycle approach to calculate the profitability of the new
fibre. The conventional approach to the profitability analysis of the fibre
follows: | Year 1 | Year 2 | Year 3 | Sales revenue | $300 000 | $600 000 | $100 000 | Less Cost of goods sold | | | | Direct materials | 75 000 | 150 000 | 25 000 | Direct labour | 90 000 | 180 000 | 30 000 | Applied manufacturing overhead | 30 000 | 60 000 | 10 000 |
In addition to these manufacturing costs,
the following upstream and downstream costs are also associated with the new
fibre: | Year 0 | Year 1 | Year 2 | Year 3 | Research and development | $100 000 | | | | Product design | 30 000 | | | | Process design | 10 000 | 2 000 | | | Tooling costs | 20 000 | | | | Marketing costs | 50 000 | 30 000 | 20 000 | 3 000 | Warranty claims | | 5 000 | 10 000 | 15 000 | After-sales service | | 2 000 | 15 000 | 3 000 |
The profitability of the new fibre using
the life cycle costing approach is:
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| | A) | $105 000 |
| | B) | $210 000 |
| | C) | $35 000 |
| | D) | $350 000 |
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| 9 | |
During a recent accounting period, Alexander’s shipping department processed 25 orders. Each order typically takes six hours to complete, but, due to various ordering department inefficiencies, the average time increased to eight hours. The shipping labour is paid $12 per hour. Alexander’s non-value-added cost would be: |
| | A) | $300 |
| | B) | $150 |
| | C) | $600 |
| | D) | $96 |
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| 10 | |
Due to increasing global competition, the management of Eastplast Plastics Company realises that its costs of manufacturing industrial plastics needs to decrease substantially for the company to remain in business. Eastplast has employed a management consultant, Jeff Smith, to investigate. In his report, Jeff states that Eastplast must focus on the processes that are essential to achieving the company’s business objectives and strategies. He recommends that Eastplast totally reorganises the way that work is done by identifying and enhancing value-added activities and eliminating all the non-value-added activities. In his report, Jeff has suggested implementing business process re-engineering. The term business process re-engineering refers to: |
| | A) | an attempt to keep costs to a minimum |
| | B) | the basic factors that cause activities to be performed and their cost to be incurred |
| | C) | a series of activities that are linked together to achieve a specific objective |
| | D) | a radical redesign of business processes to achieve dramatic improvement in critical areas of performance such as cost, quality and delivery |
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