Brad Company developed the following budgeted life-cycle income statement for two proposed products. Each product’s life cycle is expected to be two years. $\begin{array}{llll} &\underline{ \text { Product A}}& \underline{ \text {Product B}}&\underline{ \text {Total}}\\ \text { Sales } & \$ 200,000 & \$ 200,000 & \$ 400,000 \\ \text { Cost of goods sold } & \underline{120,000} & \underline{130,000} & \underline{250,000} \\ \text { Gross profit } & \underline{\$ 80,000 }&\underline{ \$ 70,000} & \$ 150,000\\ \text { Period expenses:}\\ \text { Research and development}&&&(70,000)\\ \text { Marketing}&&&\underline{ (50,000)}\\ \text { Life-cycle income }&&&\underline{ \$30,000} \end{array}$ A 10 percent return on sales is required for new products.Because the proposed products did not have a 10 percent return on sales,the products were going to be dropped. Relative to Product B,Product A requires more research and development costs but fewer resources to market the product.Sixty percent of the research and development costs are traceable to Product A,and 30 percent of the marketing costs are traceable to Product A. -Refer to the figure.What would be the life-cycle income for Product A if research and development costs and marketing costs are traced to each product?

A) $15,000 B) $23,000 C) $27,000 D) $38,000 A) $15,000 B) $23,000 C) $27,000 D) $38,000

Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30 parts but through redesign has reduced the number of parts to 9. The current activity capacity and demand for the 30-unit configuration and expected activity demand for the 9-part configuration are provided below: $\begin{array}{|l|l|c|c|c|} \hline\text { Activities } & \text { Activity } & \text { Activity } & \text { Current } & \text { Expected }\\ &\text { Driver } & \text { Capacity } & \text { Activity Demand } & \text { Activity Demand }\\\hline \begin{array}{l} \text { Materials } \\ \text { usage } \end{array} & \begin{array}{l} \text { number } \\ \text { of parts } \end{array} & 300,000 & 300,000 & 90,000 \\ \hline \text { Assembly } & \begin{array}{l} \text { direct } \\ \text { labour } \\ \text { hours } \end{array} & 20,000 & 20,000 & 6,000 \\ \hline \begin{array}{l} \text { Purchasing } \\ \text { parts } \end{array} & \begin{array}{l} \text { number } \\ \text { of orders } \end{array} & 20,000 & 16,000 & 8,000 \\ \hline \end{array}$ Materials usage has a rate of $5 per part and no fixed costs.Assembly has a rate of $20 per labour hour with no fixed component.Purchasing requires clerks who can process 5,000 purchase orders.Each clerk earns $40,000 per year.There is also a $1 per order processing cost. -Refer to the figure.What is the cost savings from purchasing parts?

A) $40,000 B) $48,000 C) $80,000 D) $88,000 A) $40,000 B) $48,000 C) $80,000 D) $88,000

Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30 parts but through redesign has reduced the number of parts to 9. The current activity capacity and demand for the 30-unit configuration and expected activity demand for the 9-part configuration are provided below: $\begin{array}{|l|l|c|c|c|} \hline\text { Activities } & \text { Activity } & \text { Activity } & \text { Current } & \text { Expected }\\ &\text { Driver } & \text { Capacity } & \text { Activity Demand } & \text { Activity Demand }\\\hline \begin{array}{l} \text { Materials } \\ \text { usage } \end{array} & \begin{array}{l} \text { number } \\ \text { of parts } \end{array} & 300,000 & 300,000 & 90,000 \\ \hline \text { Assembly } & \begin{array}{l} \text { direct } \\ \text { labour } \\ \text { hours } \end{array} & 20,000 & 20,000 & 6,000 \\ \hline \begin{array}{l} \text { Purchasing } \\ \text { parts } \end{array} & \begin{array}{l} \text { number } \\ \text { of orders } \end{array} & 20,000 & 16,000 & 8,000 \\ \hline \end{array}$ Materials usage has a rate of $5 per part and no fixed costs.Assembly has a rate of $20 per labour hour with no fixed component.Purchasing requires clerks who can process 5,000 purchase orders.Each clerk earns $40,000 per year.There is also a $1 per order processing cost. -Refer to the figure.What is the savings in materials usage cost with the new design changes?

A) $210,000 B) $400,000 C) $1,050,000 D) $1,500,000 A) $210,000 B) $400,000 C) $1,050,000 D) $1,500,000

Prior to installing a JIT system, Clark Company used machine hours to assign maintenance costs to its three products of 4-cm, 6-cm, and 9-cm insulation. The maintenance costs totalled $400,000 per year. The machine hours used by each product and the quantity produced of each product are as follows: $\begin{array}{lcc} &\underline{\text {Machine Hours}}& \underline{\text {Quantity Produced}}\\ 4 \mathrm{~cm} & 12,000 & 31,250 \mathrm{rolls} \\ 6 \mathrm{~cm} &20,000 & 25,000 \mathrm{rolls} \\ 9 \mathrm{~cm} & 18,000 &12,000 \mathrm{rolls} \end{array}$ After installing JIT,three manufacturing cells were created and the cell workers were trained to perform maintenance.Maintenance costs for the three cells still totalled $400,000; however,these costs are now traceable to each cell. \[\begin{array} { c r } \text { Cell } 4 \mathrm {~cm} & \$ 100,000 \\ \text { Cell, } 6 \mathrm {~cm} & 120,000 \\ \text { Cell } 9 \mathrm {~cm} & 180,000 \end{array}\] -Refer to the figure.What would be the maintenance cost per roll of 6-cm insulation before JIT is installed?

A) $6.40 B) $9.33 C) $16.00 D) $20.00 A) $6.40 B) $9.33 C) $16.00 D) $20.00

Exam 13: Strategic Cost Management

Brad Company developed the following budgeted life-cycle income statement for two proposed products. Each product’s life cycle is expected to be two years. Sales \ 200,000 \ 200,000 \ 400,000 Cost of goods sold Gross profit \ 150,000 Period expenses: Research and development (70,000) Marketing Life-cycle income A 10 percent return on sales is required for new products.Because the proposed products did not have a 10 percent return on sales,the products were going to be dropped. Relative to Product B,Product A requires more research and development costs but fewer resources to market the product.Sixty percent of the research and development costs are traceable to Product A,and 30 percent of the marketing costs are traceable to Product A. -Refer to the figure.What would be the life-cycle income for Product A if research and development costs and marketing costs are traced to each product?

(Multiple Choice)

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Question 21

Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30 parts but through redesign has reduced the number of parts to 9. The current activity capacity and demand for the 30-unit configuration and expected activity demand for the 9-part configuration are provided below: Activities Activity Activity Current Expected Driver Capacity Activity Demand Activity Demand Materials usage number of parts 300,000 300,000 90,000 Assembly direct labour hours 20,000 20,000 6,000 Purchasing parts number of orders 20,000 16,000 8,000 Materials usage has a rate of $5 per part and no fixed costs.Assembly has a rate of $20 per labour hour with no fixed component.Purchasing requires clerks who can process 5,000 purchase orders.Each clerk earns $40,000 per year.There is also a $1 per order processing cost. -Refer to the figure.What is the cost savings from purchasing parts?

(Multiple Choice)

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Question 22

What type of manufacturing reduces inventory levels because production is geared to demand?

(Multiple Choice)

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Question 23

Explain the difference between acceptable quality level and total quality control.

(Essay)

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Question 24

What is total quality management?

(Multiple Choice)

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Question 25

Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30 parts but through redesign has reduced the number of parts to 9. The current activity capacity and demand for the 30-unit configuration and expected activity demand for the 9-part configuration are provided below: Activities Activity Activity Current Expected Driver Capacity Activity Demand Activity Demand Materials usage number of parts 300,000 300,000 90,000 Assembly direct labour hours 20,000 20,000 6,000 Purchasing parts number of orders 20,000 16,000 8,000 Materials usage has a rate of $5 per part and no fixed costs.Assembly has a rate of $20 per labour hour with no fixed component.Purchasing requires clerks who can process 5,000 purchase orders.Each clerk earns $40,000 per year.There is also a $1 per order processing cost. -Refer to the figure.What is the savings in materials usage cost with the new design changes?

(Multiple Choice)

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Question 26

What does life-cycle cost management consist of?

(Multiple Choice)

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Question 27

Rudy Company sells a product for $450 per unit. Its market share is 25 percent. The marketing manager feels that the market share can be increased to 33 percent with a reduction in price to $390. The product is currently earning a profit of $72 per unit. The president of Rudy Company feels that the $72 profit per unit must be maintained. -Refer to the figure.What is the original cost per unit?

(Multiple Choice)

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Question 28

Bill Jones has decided to purchase a printer.He has narrowed the choice to two: Brand A and Brand B.Both brands have the same speed and use the same type of paper.Both come from companies with good reputations.The selling price for each is identical.After some review,Bill discovers that the cost of operating and maintaining Brand A over a three-year period is estimated to be $300.For Brand B,the operating and maintenance cost is $150.The sales agent for Brand B emphasizes the lower operating and maintenance cost.She claims that it is lower than any other printer.In addition,she provides Bill with a copy of an article appearing in a PC magazine that rates service performance of various printers.Brand B is rated number one. a.Which brand should Bill buy? Why? b.What is the total product purchased by Bill? c.What does it mean to obtain a competitive advantage? What role does the cost management system play in helping to achieve this goal?

(Essay)

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Question 29

Which of the following are stages of the production life-cycle viewpoint?

(Multiple Choice)

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Question 30

Prior to installing a JIT system, Clark Company used machine hours to assign maintenance costs to its three products of 4-cm, 6-cm, and 9-cm insulation. The maintenance costs totalled $400,000 per year. The machine hours used by each product and the quantity produced of each product are as follows: 4 12,000 31,250 6 20,000 25,000 9 18,000 12,000 After installing JIT,three manufacturing cells were created and the cell workers were trained to perform maintenance.Maintenance costs for the three cells still totalled $400,000; however,these costs are now traceable to each cell. Cell 4 \ 100,000 Cell, 6 120,000 Cell 9 180,000 -Refer to the figure.What would be the maintenance cost per roll of 6-cm insulation before JIT is installed?

(Multiple Choice)

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Question 31

What is the term for the use of cost data to develop and identify superior strategies that will produce a sustainable competitive advantage?

(Multiple Choice)

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Question 32

Which of the following manufacturing costs is not assigned to products in JIT environment using direct tracing?

(Multiple Choice)

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Question 33

A firm that has implemented JIT had the following transactions: 1. Materals were purchased an account for $50,000 2. Materials were placed inta production. 3. Actual direct labour costs were $16,000. 4. Actual averhead costs were $30,000. 5. Conversion costs applied were $52,000. 6. All work was completed for the month. 7. All completed work was sald. 8. The variance is recoprized. -Refer to the figure.Which of the following would NOT be an entry under the back flush system,assuming the second trigger point is the completion of goods?

(Multiple Choice)

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Question 34

Rudy Company sells a product for $450 per unit. Its market share is 25 percent. The marketing manager feels that the market share can be increased to 33 percent with a reduction in price to $390. The product is currently earning a profit of $72 per unit. The president of Rudy Company feels that the $72 profit per unit must be maintained. -Refer to the figure.What would the life-cycle income for Product BB be if research and development costs and marketing costs are traced to each product?

(Multiple Choice)

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Question 35

What is the complete range of tangible and intangible benefits that a customer receives from a purchased product?

(Multiple Choice)

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Question 36

Which of the following manufacturing costs is assigned to products in a traditional environment using direct tracing?

(Multiple Choice)

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Question 37

What are structural and executional factors that determine the long-term cost structure of an organization?

(Multiple Choice)

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Question 38

What is the last link of the internal value chain?

(Multiple Choice)

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Question 39

Which of the following is a trait of a JIT system?

(Multiple Choice)

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Question 40

What type of manufacturing reduces inventory levels because production is geared to demand?

Explain the difference between acceptable quality level and total quality control.

What is total quality management?

What does life-cycle cost management consist of?

Which of the following are stages of the production life-cycle viewpoint?

What is the term for the use of cost data to develop and identify superior strategies that will produce a sustainable competitive advantage?

Which of the following manufacturing costs is not assigned to products in JIT environment using direct tracing?

What is the complete range of tangible and intangible benefits that a customer receives from a purchased product?

Which of the following manufacturing costs is assigned to products in a traditional environment using direct tracing?

What are structural and executional factors that determine the long-term cost structure of an organization?

What is the last link of the internal value chain?

Which of the following is a trait of a JIT system?

A: Basic Cost Management Concepts

B: Basic Cost Management Concepts

Cost Behaviour

Cost-Volume-Profit Analysis

Job-Order Costing Systems

Process Costing

Activity-Based Costing

Allocating Costs of Support Departments and Joint Products

Budgeting for Planning and Control

Standard Costing: a Functional-Based Control Approach

Responsibility Accounting,performance Evaluation,and Transfer Pricing

Tactical Decision Making

Pricing and Profitability Analysis

Activity-Based Management

The Balanced Scorecard: Strategic-Based Control

Quality and Environmental Cost Management

Lean Accounting and Productivity Measurement

Inventory Management: Economic Order Quantity,jit,and the Theory of Constraints

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