Exam 15: The Strategic Management of Costs and Revenues

The market size variance:

BLG produces and sells yachts for wealthy customers. BLG's accountants produced the data shown below as a basis for client negotiations for the coming year: Assume that all the preceding costs are avoidable. The company will incur an additional $800 in unavoidable costs during the coming year. BLG's managers want to achieve a profit margin of 80% based on total costs. If unavoidable costs are allocated as a percentage of avoidable costs, the total cost of Sport Star's yacht will be

If an organisation is able to charge extra to a customer who consumes greater company resources then the fact that they require extra servicing is not a problem.

Describe cost-based pricing and give an example of a product for which this pricing method would be appropriate Correct

TTV's managers estimate that a 50% increase in price would cause an 80% reduction in the quantity of product sold. Total fixed costs for the product are $5,000 and total variable costs are $4,000, based on production of 400 units. The following values may be useful: TTV's profit maximising price is

In cost-based pricing, managers must use only variable costs in the cost base.

After establishing a target cost for a product or service, managers assemble a product design team. The product design team usually comprises

Focusing on the customers or clients as the cost object may reveal useful insights for improving organisational performance.

Although products are initially sold at a loss, under life cycle costing managers usually expect

Setting prices low to drive competitors out of the market and then raising prices is called

A value chain is the sequence of business processes in which value is added to a product or a service.

Which of the following steps occurs first in a target costing design cycle?

A penetration price is the price charged for transactions that take place within a single organisation.

Rebecca is an accountant for CHC. Her boss has asked her to participate in a target costing project for a pen that will write upside down. Which of the following information sources would Rebecca use to determine a competitive price?

The statement concerning the product mix variance that is true is:

Under kaizen costing, accountants forecast

Because inventory level information is in a company's internal accounting records, suppliers cannot access it.

When does kaizen costing typically occur?

Life cycle costing focuses on costs incurred in production, but not on those incurred when an operation is closed down and requires costly cleanup activities.

In an economic downturn, a problem with cost-based pricing is a potential death spiral.