Exam 7: Assessing and Improving Product Profitability

The material price variance is computed by weighting the difference between the actual price of a raw material and its standard price by the quantity of material allowed for the actual output achieved.

External product quality failures will typically prove more costly than internal product quality failures.

The internal process focused on bringing together all of the parts needed to produce the product is termed:

The attainment phase of target costing focuses on eliminating the cost gap.

Product cost variance analysis will help management understand some of the reasons that:

A continuous improvement program will focus only on financial measures of production performance.

Squishy Burger Company has developed a number of nonfinancial measures to assess customer reaction to its new Tower of Yummy sandwich. Which of the following tools would prove most useful in assessing customer acceptance of the new sandwich relative to the company's established products?

Following some process redesign, Wild Birds in the Garden, Inc, has concluded that it can sell its new baffle for bird feeders at $15 per unit. Variable production costs will be $8.25 per unit. In addition, the company will incur total fixed costs associated with production of the baffle of $300,000 annually. Variable selling costs will add another $2.75 per unit. Required: a. Compute the breakeven volume of annual sales for the new baffle. b. A discount chain, Dollar Lieutenant, approaches Wild Birds in the Garden with an offer to purchase 20,000 of the baffles at a reduced price of $12.50 per unit. These baffles could be produced in different colors to distinguish them from those that will be sold exclusively in Wild Birds in the Garden's franchised retail stores. Wild Birds in the Garden has sufficient capacity to fill the special order with no increase in fixed costs. It would also incur only $1.00 per unit of variable selling costs on these 20,000 units. Using incremental analysis, demonstrate whether or not it makes sense for Wild Birds in the Garden to accept this special order.

External failure costs include all of the following costs except those related to:

From the perspective of the customer, the difference between the perceived worth of a product and its selling price is referred to as the product's:

When analyzing the impact of tactical changes, incremental analysis improves on cost-volume-profit analysis by:

When evaluating the cost of quality in an organization, which of the following would be considered an internal failure cost?

Phillips & Company produces educational software. Its unit cost structure, based upon an anticipated production volume of 150,000 units, is as follows. The marketing department has estimated sales for the coming year at 175,000 units, which is within the relevant range of Phillips's cost structure. Phillips has an opportunity to adopt a new structure for the coding of its software that will increase variable costs per unit to $66.25, but at the same time allow the company to reduce unit fixed costs to $50. These changes to the cost structure would have no impact on selling price or anticipated sales. If the changes are made, the new breakeven point and anticipated operating income for the coming year amount to:

Refrigerator Company manufactures ice makers for installation in refrigerators. The costs per unit, for 20,000 units of ice makers, are as follows. Cool Compartments Inc. has offered to sell 20,000 ice makers to Refrigerator Company for $28 per unit. If Refrigerator accepts Cool's offer, the plant would be idled and fixed overhead amounting to $6 per unit could be eliminated. The total relevant costs associated with the manufacture of ice makers amount to

Phillips & Company produces educational software. Its unit cost structure, based upon an anticipated production volume of 150,000 units, is as follows. The marketing department has estimated sales for the coming year at 175,000 units, which is within the relevant range of Phillips's cost structure. Phillips's breakeven volume (in units) and anticipated operating income for the coming year would amount to:

Quest Tires, Inc., asks customers to rate its new Ice Pick All Weather tire on four metrics: durability, handling, noise, and traction. Customers rate the tires on a scale of 0 to 5. Quest compares these customer reactions to similar evidence on its long-established Snow Chaser tire. The largest discrepancy between the two tires is on the durability metric. This difference would be most evident on a:

The use of cost-volume-profit analysis to evaluate the impact of tactical changes is limited by the assumption that:

Scrapped units and rework are typical costs of an internal product quality failure.

A process change will reduce unit variable cost while leaving the product price and total fixed cost unchanged. This will necessarily reduce the product's breakeven volume.

A poorly performing new product will harm the entity by reducing the sales volumes of complementary products.