13

Student: _______________________________________________________________________________________

1. Many firms choose to achieve target cost through redesign of the product or service because they recognize that design decisions:

A. Are life cycle costs with high downstream costs and benefits.
B. Account for much of the total product life cycle costs.
C. Impact costs at the manufacturing stage of the life cycle.
D. Are critical success factors in most firms.

2. Many firms are finding it is difficult to compete successfully on cost leadership or differentiation alone, and they must, in fact, compete
on both:

A. Cost and design.

B. Price and functionality.
C. Cost and price.
D. Design and functionality.
E. Cost and functionality.

3. _________________________ is an important first step in value engineering because it identifies critical consumer preferences that will
define the product's desired functionality.

A. Consumer analysis
B. Sales force analysis
C. Design analysis
D. R&D analysis
E. Market place analysis

4. Which of the following are computer-based databases that include comprehensive information about the firm's cost drivers?

A. Cost tables.
B. Cost databases.
C. Cost driver tables.
D. Excel tables.

5. Which of the following is a method of reducing cost by identifying parts in different products that are common and interchangeable?

A. Target costing.
B. Value chain analysis.
C. Concurrent engineering.
D. Group technology.
E. Theory of constraints.

6. Throughput margin is defined as sales less:

A. Direct labor costs.

B. Direct material costs.
C. Direct labor and material costs.
D. Processing costs.
E. Manufacturing costs.

7. The theory of constraints (TOC) emphasizes which of the following?

A. Developing competitive constraints.

B. Finding and eliminating design constraints.
C. Removing bottlenecks from the production process.
D. Improving overall production efficiency.

8. The theory of constraints (TOC) approach is strategically important in dynamic markets because it leads to:

A. A more responsive and flexible manufacturing environment.

B. Better customer relationships.
C. Quicker data accessibility.
D. Faster setup times.

9. Activity-based costing (ABC) and the theory of constraints (TOC) are viewed as methods that are:

A. Substitutions for one another.

B. Complementary.
C. Auxiliary.
D. Responsive.
E. Parallel.

10. Reduced time-to-market, reduced expected service cost, and ease-of-manufacture are critical success factors at which stage of the cost life
cycle?

A. R & D.
B. Product planning and scheduling.
C. Product design.
D. Manufacturing.
11. Concurrent engineering relies on an integrated approach, in which the engineering/design process takes place throughout the cost life
cycle using cross-functional teams. Strategically, this concurrent approach should give a firm all of the following except:

A. Flexibility in refining its design.

B. Ability to quickly incorporate customer suggestions.
C. Cost savings because of time saved.
D. More detailed analysis of product functionality.

12. Generally, firms will price a product more competitively at which stages of the product's sales life cycle?

A. Product introduction and Growth.

B. Maturity and decline.
C. Throughout the cycle.
D. At the end of the life cycle.

13. The sequence of activities within the firm which begins with research and development, followed by design, and manufacturing,
marketing/distribution, and customer service is the:

A. Sales life cycle.

B. Target life cycle.
C. Market life cycle.
D. Critical life cycle.
E. Cost life cycle.

14. The sequence of phases in the product or service's life in the market - from the introduction of the product or service to the growth in sales
and finally maturity, decline, and withdrawal from the market is the:

A. Sales life cycle.

B. Target life cycle.
C. Market life cycle.
D. Critical life cycle.
E. Cost life cycle.

15. When a firm determines the desired cost for a product or service, given a competitive market price, in order to earn a desired profit, the
firm is exercising:

A. Target costing.
B. Life cycle costing.
C. Variable costing.
D. Absorption costing.
E. Competitive costing.

16. Which one of the following is not one of the five steps in TOC analysis?

A. Identify the binding constraint(s).

B. Determine the most efficient utilization for each binding constraint.
C. Manage the flow through the binding constraint.
D. Identify those responsible for bottlenecks and make adjustments as needed.
E. Redesign the manufacturing process for flexibility and fast throughput.

17. The goals of coordinating manufacturing processes, thereby reducing the amount of inventory and improving overall productivity, is
particularly important in a:

A. Standard cost system.

B. Just-in-time system.
C. Normal costing system.
D. Activity based costing system.
E. Total quality management system.

18. Which one of the following is true concerning TOC?

A. A
B. B
C. C
D. D
E. E

19. Henry Ford was an early pioneer in the use of:

A. the theory of constraints.

B. target costing.
C. life cycle costing.
D. just-in-time manufacturing.

20.
During which stage of the sales life cycle of a product do sales continue to increase but at a decreasing rate, and competition tends to
 focus on cost?

A. Maturity.
B. Decline.
C. Inflation.
D. Growth.
E. Introduction.

21. TwoShaft Inc. manufactures a wide variety of parts for recreational boating, including boat engines. The component is purchased by OEM
(Original Equipment Manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell for
$660, and sales volume averages 32,000 units per year. Recently, TwoShaft's major competitor lowered the price of the equivalent part to
$590. The market was very competitive, and TwoShaft realized it had to meet the new price or lose significant market share. The
controller assembled the following data for the most recent year:

The target cost for maintaining current market share and profitability is (round to nearest cent):

A. $466.61.
B. $417.12.
C. $396.61.
D. $390.61.
E. $460.61.

22. Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine
eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).
The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products
are as follows:

The product cost for model B-13 is:

A. $1,457.82.
B. $1,293.32.
C. $1,159.34.
D. $905.31.
E. $980.91.

23.
Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine
eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).
The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:
 LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products
are as follows:

The product cost for model F-32 is:

A. $1,457.82.
B. $1,293.32.
C. $1,159.34.
D. $905.31.
E. $980.91.

24. Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine
eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).
The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products
are as follows:

The profit margin based on manufacturing cost for model B-13 is:

A. $481.68.
B. $314.69.
C. $239.09.
D. $317.18.
E. $338.16.

25. Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine
eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).
The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products
are as follows:

The profit margin based on manufacturing cost for model F-32 is:

A. $481.68.
B. $314.69.
C. $239.09.
D. $317.18.
E. $338.16.
26. Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine
eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).
The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products
are as follows:

If the market price for B-13 and F-32 are reduced to $1,695 and $1,095 respectively, and Lens Care wants to maintain market share and
profitability, what is the target cost for B-13 and F-32 (round to nearest whole dollar)?

A. A
B. B
C. C
D. D
E. E

27. To achieve the target cost, Lens Care plans to reduce materials handling costs. How many parts must be removed from B-13 in order to
achieve the target cost for B-13(round up to whole units)?

A. 11
B. 46
C. 34
D. 28
E. 53

28. To achieve the target cost, Lens Care plans to reduce materials handling costs. How many parts must be removed from B-13 in order to
achieve the target cost for B-13 (round up to whole units)?

A. 11
B. 46
C. 34
D. 28
E. 53

29. Quality Industries manufactures large workbenches for industrial use. Yewell Hartnet, the Vice President for marketing at Quality
Industries, concluded from market analysis that sales were dwindling for Standards' workbenches due to aggressive pricing by
competitors. Quality's workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060. Yewell determined
that a price drop to $1,060 would be necessary to retain market share and annual sales of 13,000 tables.
Cost data based on sales of 13,000 tables:

The current cost per unit is:

A. $588.
B. $523.
C. $465.
D. $637.
E. $445.

30. The current profit per unit is:

A. $503.
B. $674.
C. $616.
D. $524.
E. $694.

31. Quality Industries manufactures large workbenches for industrial use. Yewell Hartnet, the Vice President for marketing at Quality
Industries, concluded from market analysis that sales were dwindling for Standards' workbenches due to aggressive pricing by
competitors. Quality's workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060. Yewell determined
that a price drop to $1,060 would be necessary to retain market share and annual sales of 13,000 tables.
Cost data based on sales of 13,000 tables:

If the profit per unit is maintained, the target cost per unit is:

A. $488.81.
B. $556.54.
C. $515.81.
D. $423.73.
E. E)$345.42.

32. In order to reduce costs so as to reach the desired target cost, Quality Industries should also focus on reducing the cost of:

A. Direct materials
B. Direct labor
C. Machine setups
D. Mechanical assembly

33. Suzy Co. produces and sells three products (X, Y, and Z). The following data relate to the three products:

Which is the most profitable product if there is no constraint on labor time?

A. Product X.
B. Product Y.
C. Product Z.
D. More than one of the products has equal total contributions per labor minute.
E. There isn't enough information to answer the question.

34. Suzy Co. produces and sells three products (X, Y, and Z). The following data relate to the three products:

Which is the most profitable product if there is a constraint on labor time, so that total demand for all products cannot be met?

A. Product X.
B. Product Y.
C. Product Z.
D. More than one of the products has equal total contributions per labor minute.
E. There isn't enough information to answer the question.

35. Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line profitability analysis for his firm's two products -
Askin and Bskin. The two products are skin care products that require a large amount of research and development and advertising. He
received the report below. Ken concluded that Askin was the more profitable product, and that perhaps cost-cutting measures should be
applied to the Bskin product.

Seventy-five percent of the research and development and selling expenses were traceable to Askin.
Profit before taxes for the Askin product, per life-cycle income statements, is:

A. $175,000.
B. $425,000.
C. $522,500.
D. $207,500.
E. E)$332,500.

36.
Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line profitability analysis for his firm's two products -
 Askin and Bskin. The two products are skin care products that require a large amount of research and development and advertising. He
received the report below. Ken concluded that Askin was the more profitable product, and that perhaps cost-cutting measures should be
applied to the Bskin product.

Seventy-five percent of the research and development and selling expenses were traceable to Askin.
Profit before taxes for the Bskin product, per life-cycle income statements, is:

A. $175,000.
B. $425,000.
C. $522,500.
D. $207,500.
E. $332,500.

37. The management accountant at Iang Manufacturing Co. collected the following data in preparation for a life-cycle analysis on one of its
products, a leaf blower:

The stage of the sales life cycle the product is determined to be:

A. Introduction.
B. Growth
C. Maturity.
D. Decline.
E. Withdrawal.

38. Which of the following is a theory of constraints (TOC) measure of product profitability that equals price less materials cost, including all
purchased components and materials handling costs?

A. Takt time.
B. Throughput margin.
C. Profitability margin.
D. Price analysis.
E. A
F. B
G. C
H. D

39. The management accountant at Jang Manufacturing Co. collected the following data in preparation for a life-cycle analysis on one of its
products, a leaf blower:

The stage of the sales life cycle the product is in is:

A. Introduction.
B. Growth.
C. Maturity.
D. Decline.
E. Withdrawal.

40.
Bryan Inc. produces a specialty top-quality juice machine. The product, the JM50, requires four processes to be completed. Specifically,
these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations
with different completion rates:
Exterior construction can manufacture 100,000 juicer exteriors per day.
Pulp filter insertion can install 25,000 filters every 6 hours.
Painting can decorate 3,000 juicers every half hour.
Packaging can package 5,000 juicers per hour.
The plant operates 24/7, 24 hours a day every day of the week.
 How many JM50 machines can Bryan Inc. manufacture per month (assume an average 30 day month)?

A. 4,320,000 juicers.
B. 3,600,000 juicers.
C. 3,000,000 juicers.
D. 3,200,000 juicers.

41. Bryan Inc. produces a specialty top-quality juice machine. The product, the JM50, requires four processes to be completed. Specifically,
these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations
with different completion rates:
Exterior construction can manufacture 100,000 juicer exteriors per day.
Pulp filter insertion can install 25,000 filters every 6 hours.
Painting can decorate 3,000 juicers every half hour.
Packaging can package 5,000 juicers per hour.
The plant operates 24/7, 24 hours a day every day of the week.
Which function(s) is/are the bottleneck(s)?

A. Exterior construction and pulp filter insertion.

B. Pulp filter insertion.
C. Painting.
D. Packaging.
E. Exterior construction.

42. Bryan Inc. produces a specialty top-quality juice machine. The product, the JM50, requires four processes to be completed. Specifically,
these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations
with different completion rates:
Exterior construction can manufacture 100,000 juicer exteriors per day.
Pulp filter insertion can install 25,000 filters every 6 hours.
Painting can decorate 3,000 juicers every half hour.
Packaging can package 5,000 juicers per hour.
The plant operates 24/7, 24 hours a day every day of the week.
What is the least amount of monthly capacity you would have to add to the bottleneck(s) to shift the bottleneck to a different process?

A. 2,000,001 juicers per month.

B. 600,001 juicers per month.
C. 1,320,001 juicers per month.
D. 50,001 juicers per month.

43. Bryan Inc. produces a specialty top-quality juice machine. The product, the JM50, requires four processes to be completed. Specifically,
these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations
with different completion rates:
Exterior construction can manufacture 100,000 juicer exteriors per day.
Pulp filter insertion can install 25,000 filters every 6 hours.
Painting can decorate 3,000 juicers every half hour.
Packaging can package 5,000 juicers per hour.
The plant operates 24/7, 24 hours a day every day of the week.
What cost management technique does this case illustrate?

A. Target costing.
B. Theory of constraints.
C. Life-cycle costing.
D. ABC analysis.

44. Place the phases of the cost life cycle (value chain) in the correct order from upstream to downstream activities.

A. Manufacturing, R&D, Design, Customer Service, Marketing & Distribution.

B. Design, R&D, Marketing & Distribution, Manufacturing, Customer Service.
C. Customer Service, Design, R&D, Manufacturing, Marketing & Distribution.
D. R&D, Design, Manufacturing, Marketing & Distribution, Customer Service.
E. Marketing & Distribution, Customer Service, Design, R&D, Manufacturing.

45. Target cost can be defined as:

A. Manufacturing cost - sales price.

B. Competitive price - desired profit.
C. Desired profit - market price.
D. Target price - manufacturing cost.

46. Which of the following is the speed at which units must be manufactured to meet customer demand?

A. Production time.
B. Manufacturing time.
C. Takt time.
D. Throughput time.

47. Electronic Component Company is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC"
DVD player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new DVD
player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing
department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 DVD players per year.
Irrespective of the competitor's price, what is EEC's required selling price if the target profit is 25% of sales and current costs cannot be
reduced?

A. $280.00.
B. $292.50.
C. $299.00.
D. $308.50.

48. Electronic Component Company is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC"
DVD player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new DVD
player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing
department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 DVD players per year.
What is the target cost if target profit is 20% of sales and ECC must meet the competitive price of $220?

A. $168.50.
B. $176.00.
C. $184.25.
D. $190.00.

49. Electronic Component Company is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC"
DVD player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new DVD
player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing
department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 DVD players per year.
Assuming sales and marketing are not correct in their estimation and the volume of sales is not changed and ECC meets the competitive
price, what is the target cost if ECC wants to maintain its same income level?

A. $210.
B. $200.
C. $190.
D. $180.

50. Which of the following phases are included in the sales life cycle?

A. A
B. B
C. C
D. D

51. During the sales life cycle, which is an example of what happens during the introduction phase?

A. Sales and price decline, as do the number of competitors.

B. Sales continue to increase but at a decreasing rate. The number of competitors and product variety decline.
C. Sales increase rapidly along with an increase in product variety.
D. Sales rise slowly as customers become aware of the new product or service. Product variety is limited.

52. During the sales life cycle, which is an example of what happens during the growth phase?

A. Sales and price decline, as do the number of competitors.

B. Sales continue to increase but at a decreasing rate. The number of competitors and product variety decline.
C. Sales increase rapidly along with an increase in product variety.
D. Sales rise slowly as customers become aware of the new product or service. Product variety is limited.

53. During the sales life cycle, which is an example of what happens during the maturity phase?

A. Sales and price decline, as do the number of competitors.

B. Sales continue to increase but at a decreasing rate. The number of competitors and product variety decline.
C. Sales increase rapidly along with an increase in product variety.
D. Sales rise slowly as customers become aware of the new product or service. Product variety is limited.

54. When comparing Activity-based costing (ABC) and the Theory of Constraints (TOC), the approach each method takes toward
profitability analysis is:

A. TOC takes a short-term approach and ABC takes a long-term approach.

B. TOC takes a long-term approach and ABC takes a short-term approach.
C. Both TOC and ABC take a short-term approach.
D. Both TOC and ABC take a long-term approach.

55. Place the five steps in implementing a target costing approach in the proper order:
1 - Determine desired profit
2 - Use kaizen costing and operational control to reduce costs
3 - Determine the market price
4 - Use value engineering to identify ways to reduce product costs
5 - Calculate the target cost at market price less desired profit

A. 3,2,1,4,5.
B. 2,5,4,1,3.
C. 4,5,1,3,2.
D. 3,1,5,4,2.
E. 5,3,2,1,4.
56. Quality Chairs Inc. (QC) manufactures chairs for industrial use. Laura Winters, the Vice President for Marketing at QC, concluded from
market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for
$550 whereas the competition's comparable chair was selling for $495. Winters determined that a price drop to $495 would be necessary
to regain market share and annual sales of 10,000 chairs.
Cost data based on sales of 10,000 chairs:

The current cost per unit is:

A. $250.
B. $300.
C. $400.
D. $450.
E. $475.

57. Quality Chairs Inc. (QC) manufactures chairs for industrial use. Laura Winters, the Vice President for Marketing at QC, concluded from
market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for
$550 whereas the competition's comparable chair was selling for $495. Winters determined that a price drop to $495 would be necessary
to regain market share and annual sales of 10,000 chairs.
Cost data based on sales of 10,000 chairs:

The current profit per unit is:

A. $250.
B. $300.
C. $400.
D. $450.
E. $475.

58. Quality Chairs Inc. (QC) manufactures chairs for industrial use. Laura Winters, the Vice President for Marketing at QC, concluded from
market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for
$550 whereas the competition's comparable chair was selling for $495. Winters determined that a price drop to $495 would be necessary
to regain market share and annual sales of 10,000 chairs.
Cost data based on sales of 10,000 chairs:

If the profit per unit is maintained, the target cost per unit is:

A. $105.
B. $195.
C. $205.
D. $300.
E. $250.

59. In order to reduce costs so as to reach the desired target cost, Quality Chairs should also focus on reducing the cost of:

A. Direct materials.
B. Direct labor.
C. Machine setups.
D. Mechanical assembly.

60. Which of the following is a common form of value engineering in which the design team prepares several possible designs of the product,
each having similar features with different levels of performance and different costs?

A. Cost analysis.
B. Variable design engineering.
C. Cost-based value engineering.
D. Functional analysis.
E. Design analysis.

61. Which of the following is a common type of value engineering in which the performance and cost of each major function or feature of the
product is examined?

A. Cost analysis.
B. Variable design engineering.
C. Cost-based value engineering.
D. Functional analysis.
E. Design analysis.

62. A type of strategic pricing based on analytical methods is used to:

A. Optimally determine the best price.

B. Utilize knowledge of consumer behavior in setting price.
C. More accurately determine life cycle costs as a basis for setting price.
D. Employ improved design methods that reduce cost and improve price.

63. Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to
determine the price of its product.

If Johnson determines price using a 40% markup of full manufacturing cost, the price is:

A. $262.50
B. $306.00
C. $375.00
D. $364.29
E. $330.00

64. Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to
determine the price of its product.

If Johnson determines price so as to receive a desired return on assets of 15%, the price is:

A. $262.50
B. $306.00
C. $375.00
D. $364.29
E. $330.00

65. Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to
determine the price of its product.

If Johnson determines price using a desired gross margin percentage of 50%, the price is:

A. $262.50
B. $306.00
C. $375.00
D. $364.29
E. $330.00

66.
Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to
determine the price of its product.
 If Johnson determines price using a desired return on life cycle costs of 30%, the price is:

A. $262.50
B. $306.00
C. $375.00
D. $364.29
E. $330.00

67. Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to
determine the price of its product.

If Johnson determines price using a 20% markup of life cycle cost, the price is:

A. $262.50
B. $306.00
C. $375.00
D. $364.29
E. $330.00

68. Precision Instruments, Inc. is a national firm manufacturing a full line of surgical tools for veterinarians. Recent technological
developments have produced a significantly higher grade of steel to make surgical instruments and tools. All of Precision's specialized
equipment is designed and calibrated to produce surgical tools using current surgical steel stock. Precision's management wants to begin
using the new grade of surgical steel, but recognizes the need to redesign and calibrate existing production equipment and/or purchase
newly designed production equipment. Redesign of existing equipment can be done in-house, but requires components from the Swedish
manufacturer of the equipment. New equipment will also come from Sweden, but its cost is almost double that paid seven years ago for
the existing equipment.
Required: Identify the constraints Precision will face as it chooses to upgrade existing equipment or purchase new equipment. There is
considerable market pressure to shift to use of the new steel stock for production of surgical tools.

69. DualShaft Inc. manufactures a wide variety of parts for recreational boating, including boat engines. The component is purchased by
OEM (original equipment manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell
for $790, and sales volume averages 38,000 units per year. Recently, DualShaft's major competitor lowered the price of the equivalent
part to $710. The market was very competitive, and DualShaft realized it had to meet the new price or lose significant market share. The
controller assembled the following data for the most recent year.
Cost and Usage for Production of 38,000 Units:

Required: 1. Calculate the target cost for maintaining current market share and profitability.
2. How should the company attempt to reduce cost to meet the new target cost?

70.
Cling Co. produces and sells three products (X, Y, and Z). The following data relate to the three products. Labor is a fixed cost.

Required: (1) Which is the most profitable product if there is no labor constraint? (2) Which is the most profitable product if there is a
 labor constraint?

71. Pat Baldwin owns and operates Outstanding Quality Rentals (OQR). OQR offers kayak rentals and shuttle service on the Petaholee River.
Customers can rent kayaks at one station and enter the river there. They can then exit at one of two designated locations to catch a shuttle
to return them to their vehicles. Following are the costs involved in providing this service each year.

OQR began business three years ago with a $36,000 expenditure for a fleet of 50 kayaks. These are expected to last seven more years, at
which time a new fleet will be purchased. Pat is satisfied with the steady average rentals per year of 9,900.
Required: What price should Pat charge per rental for the business to make a thirty percent life cycle profit?

72. Bell Company produces and sells three products (A,B,C). The following data relate to the three products.

Required: (1) Calculate the contribution per labor minute for each product. (2) Determine the best product mix. Assume there are five
employees, and given time for breaks, training, and regular meetings, there are a total of 2,200 minutes available per day.

73. The management accountant at the Huang Manufacturing Company has collected the following data in preparation for a life cycle
analysis on one of its products, a leaf blower:

Required: Determine what stage of the sales life cycle the leaf blower is in.

74. Warrenton Industries manufactures hydraulic components for large automated machine tools. Myles English, the Vice President for
Marketing, has concluded from his market analysis that sales are dwindling for one of the firm's products main products, a hydraulic
valve, because of aggressive pricing by competitors. Warrenton's product sells for $525 whereas the competition's comparable part is
selling in the $425 range. Mr. English has determined that a price drop to $400 is necessary to regain market share and annual sales of
1,000 units.
Cost data based on sales of 1,000 valves:

Required:
(1) Calculate the current cost and profit per unit.
 (2) How much of the current cost per unit is attributable to non-value added activities?
(3) Calculate the new target cost per unit for a sales price of $400 if the profit per unit is maintained.
(4) What strategy do you suggest for Warrenton to attain the target cost calculated in part (3)?

75. Gail Johnston is the CFO of Lancet Technologies, a manufacturer of parts and supplies for the cable TV industry. Gail has developed an
analysis of the profitability of the firm's two main product lines, cable hardware, and cable supplies. Based on the analysis, she concludes
that cable hardware is the most profitable of the firm's product lines.

Required: (1) Explain why Gail may be wrong in her assessment of the relative performances of the two product lines. (2) Suppose that
80 percent of the R & D and selling expenses are traceable to Hardware line. Prepare life-cycle income statements for each product and
calculate the return on sales. What does this tell you about the importance of accurate life-cycle costing?

76. Jamestown Furniture Co. is a small, but fast-growing manufacturer of living room furniture. Its two principal products are end tables and
sofas. There are five processes in the manufacturing at Jamestown: Cutting the lumber, cutting the fabric, sanding, staining, and assembly.
Jamestown has one employee working in fabric cutting and one employee working in staining. These are relatively skilled workers, and
could be replaced only with some difficulty. The cutting and sanding operations are performed by two workers each, and while there is
some skill to these operations, it is less critical than for staining and for fabric cutting. Assembly is the least skill-based process, and is
currently done by one full-time employee and a group of part-timers who provide a total of 175 minutes of working time per week. The
other employees work a 40-hour week, with 5 hours off for breaks, training, and personal time. Assume a four week month, and that by
prior agreement, any of the employees can be switched from one task to another. The current demand for Jamestown's products and sales
prices are provided below. Jamestown expects demand to increase significantly in the coming months (this depends on whether it is able
to successfully obtain the order it is negotiating to get from a motel chain). The materials cost for the table is $150 and $275 for the sofa.

The time required for each activity and the total time available are shown below.
Required: What is the most profitable production plan for Jamestown? Explain your answer with supporting calculations.

77. PureSwing Golf, Inc. manufactures swing analyzer systems for golf instructors. Two of its systems, Pure1000 and the Pure5000 have
these characteristics:

The Pure1000 sells for $1,000 installed and the Pure5000 sells for $1,750 installed.
Required: 1. What are the current profit margins on both systems? 2. PureSwing's management believes that it must drop the price on the
Pure1000 to $800 and on the Pure5000 to $1,450 to remain competitive in the market. Recalculate profit margins for both products at
these price levels. 3. Describe two ways that PureSwing could cut its costs to get the profit margins back to their original levels.

78. PharmCo Manufacturing operates a contract manufacturing plant in London, England. The plant produces a variety of pharmaceutical
drugs for companies around the world. Cycle time is a critical success factor for PharmCo, which has developed a number of measures of
manufacturing speed. The company has studied the matter and found that competitive contract manufacturers have manufacturing cycle
efficiency (MCE) time of about 40 percent. When last measured, PharmCo's MCE was 35 percent. At PharmCo, cycle time is defined as
 beginning at the point when the order taking is complete.
Some key measures from the most recent month's production, averaged over all the jobs during the period, are as follows:

Required: Determine the MCE time for the most recent month. What can you infer from the MCE time that you calculated?

79. AirTravel Inc. manufactures a wide variety of parts for commercial aircraft, including airplane engines. The component is purchased by
OEM (original equipment manufacturers) such as Boeing, for use in the larger and more powerful outboards. The units sell for $10,000,
and sales volume averages 2,000 units per year. Recently, AirTravel's major competitor lowered the price of the equivalent part to $9,500.
The market was very competitive, and AirTravel realized it had to meet the new price or lose significant market share. The controller
assembled the following data for the most recent year:
Cost and Usage for Production of 2,000 Units:

Required: Calculate the target cost for maintaining current market share and profitability.

80. Amanda Jones owns and operates Motorcycle Rentals Inc.(MRI). Customers can rent a motorcycle in one city and then return it at one of
three designated cities. Following are the costs involved in providing this service each year:

Motorcycle Rentals Inc. began business two years ago with a $400,000 expenditure for a fleet of 45 motorcycles. These are expected to
last five more years, at which time a new fleet will be purchased. Jeremy is satisfied with the steady average rentals per year of 10,000.
Required: 1. What price should Jeremy charge per rental for the business to make a twenty percent life-cycle profit?
2. What price should Jeremy charge per rental for the business to make a before-tax thirty percent return on investment?

81.

Excel Manufacturing has received an order for 5,000 units of its only product, Excel-A. Excel is considering a variety of methods to
determine the price of the order. Some key information about Excel follows:
 Required: 1. Determine the price using the markup of 40% of full manufacturing costs.
2. Determine the price using a 20% markup on life-cycle costs.
3. Determine the price assuming a desired 50% gross margin percentage.
4. Determine the price assuming a desired 30% return on life-cycle costs.
5. Determine the price assuming a desired 20% return on investment

82. Marchand's Restaurant had developed an excellent reputation in recent years for its price, menu, and atmosphere. The restaurant is now
completing a strategic analysis to determine whether it should make adjustments in its menu, pricing, or wait service, to better meet
customer needs and to become more competitive. Marchand's has chosen to use Quality Function Deployment (QFD) to analyze customer
preferences and its cost structure. The analysis focuses on costs that can be managed in the short term, and therefore excludes facility
related costs.
The data that Marchand's has collected so far includes information about customer preferences (Marchand's surveyed customers regarding
their preferences for taste, comfort and atmosphere) and the unit cost of the three key elements of its service: food preparation, wait staff,
and food ingredients.

Next, Marchand completed an analysis, using the expertise of its managers, wait staff and kitchen staff, to determine the contribution of
each of the three elements of its service to satisfying the three components of customer satisfaction.

Required: Determine which of the three cost elements (food preparation, wait staff, and food ingredients) should be given increased or
decreased emphasis based on a QFD analysis. Explain your answer with appropriate calculations.

83. High Point Furniture manufactures a high-quality dining table, which is offered in both oak and walnut. The demand for the tables is 800
units for the oak table and 1500 for the walnut table. The tables are priced at $495 and $995 for the oak and walnut tables, respectively.
The materials cost is $210 for the oak table and $430 for the walnut table. In addition, High Point has the following manufacturing
information for the four manufacturing processes (receiving, preparation, assembly, and finishing), showing the amount of time (in
minutes) required for each table for each process, and the total minutes of time available for each process.

Required: 1. Which process(es), if any, are constraints for the current level of demand?
2. Given any constraints identified in part (1) above, determine the best production and sales plan for the two types of tables.
3. What is the overall contribution from the production plan you determined in part (2) above?
84. Life Cycle Costing Income Statements

The following revenue and cost data are for Turner Manufacturing's two radial saws. The L40 is for the commercial market and the L50 is
for industrial customers. Both products are expected to have three-year life cycles.

Required: 1. How would a product life-cycle income statement differ from the above income statements? 2. Prepare a three-year life-cycle
income statement for both products. Which product appears to be more profitable and why?
Prepare a schedule showing each cost category as a percentage of total annual costs. What do you think this indicates about the
profitability of each product over the three-year life cycle?
 13 KEY
1. Many firms choose to achieve target cost through redesign of the product or service because they recognize that design decisions:

A. Are life cycle costs with high downstream costs and benefits.
B. Account for much of the total product life cycle costs.
C. Impact costs at the manufacturing stage of the life cycle.
D. Are critical success factors in most firms.
Blocher - Chapter 13 #1
Difficulty: Medium
Learning Objective: 13-1

2. Many firms are finding it is difficult to compete successfully on cost leadership or differentiation alone, and they must, in fact, compete
on both:

A. Cost and design.

B. Price and functionality.
C. Cost and price.
D. Design and functionality.
E. Cost and functionality.
AACSB: Analytic
Blocher - Chapter 13 #2
Difficulty: Hard
Emerging Issues: Strategy
Learning Objective: 13-1

3. _________________________ is an important first step in value engineering because it identifies critical consumer preferences that will
define the product's desired functionality.

A. Consumer analysis
B. Sales force analysis
C. Design analysis
D. R&D analysis
E. Market place analysis
Blocher - Chapter 13 #3
Difficulty: Medium
Learning Objective: 13-1

4. Which of the following are computer-based databases that include comprehensive information about the firm's cost drivers?

A. Cost tables.
B. Cost databases.
C. Cost driver tables.
D. Excel tables.
Blocher - Chapter 13 #4
Difficulty: Easy
Learning Objective: 13-1

5. Which of the following is a method of reducing cost by identifying parts in different products that are common and interchangeable?

A. Target costing.
B. Value chain analysis.
C. Concurrent engineering.
D. Group technology.
E. Theory of constraints.
Blocher - Chapter 13 #5
Difficulty: Easy
Learning Objective: 13-1

6. Throughput margin is defined as sales less:

A. Direct labor costs.

B. Direct material costs.
C. Direct labor and material costs.
D. Processing costs.
E. Manufacturing costs.
Blocher - Chapter 13 #6
Difficulty: Easy
Learning Objective: 13-2

7. The theory of constraints (TOC) emphasizes which of the following?

A. Developing competitive constraints.

B. Finding and eliminating design constraints.
C. Removing bottlenecks from the production process.
D. Improving overall production efficiency.
Blocher - Chapter 13 #7
Difficulty: Medium
Learning Objective: 13-2

8. The theory of constraints (TOC) approach is strategically important in dynamic markets because it leads to:

A. A more responsive and flexible manufacturing environment.

B. Better customer relationships.
C. Quicker data accessibility.
D. Faster setup times.
 AACSB: Analytic
Blocher - Chapter 13 #8
Difficulty: Medium
Learning Objective: 13-2

9. Activity-based costing (ABC) and the theory of constraints (TOC) are viewed as methods that are:

A. Substitutions for one another.

B. Complementary.
C. Auxiliary.
D. Responsive.
E. Parallel.
Blocher - Chapter 13 #9
Difficulty: Easy
Learning Objective: 13-2

10. Reduced time-to-market, reduced expected service cost, and ease-of-manufacture are critical success factors at which stage of the cost life
cycle?

A. R & D.
B. Product planning and scheduling.
C. Product design.
D. Manufacturing.
Blocher - Chapter 13 #10
Difficulty: Easy
Learning Objective: 13-3

11. Concurrent engineering relies on an integrated approach, in which the engineering/design process takes place throughout the cost life
cycle using cross-functional teams. Strategically, this concurrent approach should give a firm all of the following except:

A. Flexibility in refining its design.

B. Ability to quickly incorporate customer suggestions.
C. Cost savings because of time saved.
D. More detailed analysis of product functionality.
AACSB: Analytic
Blocher - Chapter 13 #11
Difficulty: Easy
Learning Objective: 13-1

12. Generally, firms will price a product more competitively at which stages of the product's sales life cycle?

A. Product introduction and Growth.

B. Maturity and decline.
C. Throughout the cycle.
D. At the end of the life cycle.
Blocher - Chapter 13 #12
Difficulty: Medium
Learning Objective: 13-4

13. The sequence of activities within the firm which begins with research and development, followed by design, and manufacturing,
marketing/distribution, and customer service is the:

A. Sales life cycle.

B. Target life cycle.
C. Market life cycle.
D. Critical life cycle.
E. Cost life cycle.
Blocher - Chapter 13 #13
Difficulty: Easy
Learning Objective: 13-1

14. The sequence of phases in the product or service's life in the market - from the introduction of the product or service to the growth in sales
and finally maturity, decline, and withdrawal from the market is the:

A. Sales life cycle.

B. Target life cycle.
C. Market life cycle.
D. Critical life cycle.
E. Cost life cycle.
Blocher - Chapter 13 #14
Difficulty: Easy
Learning Objective: 13-1

15. When a firm determines the desired cost for a product or service, given a competitive market price, in order to earn a desired profit, the
firm is exercising:

A. Target costing.
B. Life cycle costing.
C. Variable costing.
D. Absorption costing.
E. Competitive costing.
Blocher - Chapter 13 #15
Difficulty: Easy
Learning Objective: 13-1

16. Which one of the following is not one of the five steps in TOC analysis?
A. Identify the binding constraint(s).
B. Determine the most efficient utilization for each binding constraint.
C. Manage the flow through the binding constraint.
D. Identify those responsible for bottlenecks and make adjustments as needed.
E. Redesign the manufacturing process for flexibility and fast throughput.
Blocher - Chapter 13 #16
Difficulty: Easy
Learning Objective: 13-2

17. The goals of coordinating manufacturing processes, thereby reducing the amount of inventory and improving overall productivity, is
particularly important in a:

A. Standard cost system.

B. Just-in-time system.
C. Normal costing system.
D. Activity based costing system.
E. Total quality management system.
Blocher - Chapter 13 #17
Difficulty: Easy
Learning Objective: 13-2

18. Which one of the following is true concerning TOC?

A. A
B. B
C. C
D. D
E. E
Blocher - Chapter 13 #18
Difficulty: Medium
Learning Objective: 13-2

19. Henry Ford was an early pioneer in the use of:

A. the theory of constraints.

B. target costing.
C. life cycle costing.
D. just-in-time manufacturing.
Blocher - Chapter 13 #19
Difficulty: Easy
Learning Objective: 13-1

20. During which stage of the sales life cycle of a product do sales continue to increase but at a decreasing rate, and competition tends to
focus on cost?

A. Maturity.
B. Decline.
C. Inflation.
D. Growth.
E. Introduction.
Blocher - Chapter 13 #20
Difficulty: Easy
Learning Objective: 13-4

21. TwoShaft Inc. manufactures a wide variety of parts for recreational boating, including boat engines. The component is purchased by OEM
(Original Equipment Manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell for
$660, and sales volume averages 32,000 units per year. Recently, TwoShaft's major competitor lowered the price of the equivalent part to
$590. The market was very competitive, and TwoShaft realized it had to meet the new price or lose significant market share. The
controller assembled the following data for the most recent year:

The target cost for maintaining current market share and profitability is (round to nearest cent):
A. $466.61.
B. $417.12.
C. $396.61.
D. $390.61.
E. $460.61.

Current cost = $14,391,600/32,000 = $466.6125 rounded, = $466.61

Current Profit = $660-$466.61 = $193.39
Target cost = $590 - $193.39 = $396.61
Blocher - Chapter 13 #21
Difficulty: Easy
Learning Objective: 13-1

22. Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine
eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).
The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products
are as follows:

The product cost for model B-13 is:

A. $1,457.82.
B. $1,293.32.
C. $1,159.34.
D. $905.31.
E. $980.91.

Blocher - Chapter 13 #22

Difficulty: Medium
Learning Objective: 13-1

23.
Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine
eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).
The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products
are as follows:
 The product cost for model F-32 is:

A. $1,457.82.
B. $1,293.32.
C. $1,159.34.
D. $905.31.
E. $980.91.

Blocher - Chapter 13 #23

Difficulty: Medium
Learning Objective: 13-1

24. Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine
eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).
The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products
are as follows:

The profit margin based on manufacturing cost for model B-13 is:

A. $481.68.
B. $314.69.
C. $239.09.
D. $317.18.
E. $338.16.

Blocher - Chapter 13 #24

Difficulty: Medium
Learning Objective: 13-1

25. Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine
eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).
The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:
 LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products
are as follows:

The profit margin based on manufacturing cost for model F-32 is:

A. $481.68.
B. $314.69.
C. $239.09.
D. $317.18.
E. $338.16.

Blocher - Chapter 13 #25

Difficulty: Medium
Learning Objective: 13-1

26. Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine
eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).
The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:

LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products
are as follows:

If the market price for B-13 and F-32 are reduced to $1,695 and $1,095 respectively, and Lens Care wants to maintain market share and
profitability, what is the target cost for B-13 and F-32 (round to nearest whole dollar)?

A. A
B. B
C. C
D. D
E. E

$1,695 - ($1,775 - $1,457.82) = $1,378; $1,095 - ($1,220 - $980.91) = $856

Blocher - Chapter 13 #26
Difficulty: Medium
Learning Objective: 13-1

27. To achieve the target cost, Lens Care plans to reduce materials handling costs. How many parts must be removed from B-13 in order to
achieve the target cost for B-13(round up to whole units)?

A. 11
B. 46
C. 34
D. 28
E. 53

($1,458-1,378)/$2.4 = 33.33, round up to 34

Blocher - Chapter 13 #27
Difficulty: Easy
Learning Objective: 13-1

28. To achieve the target cost, Lens Care plans to reduce materials handling costs. How many parts must be removed from B-13 in order to
achieve the target cost for B-13 (round up to whole units)?

A. 11
B. 46
C. 34
D. 28
E. 53

($981 - 856)/2.40 = 52.08, round up to 53

Blocher - Chapter 13 #28
Difficulty: Medium
Learning Objective: 13-1

29. Quality Industries manufactures large workbenches for industrial use. Yewell Hartnet, the Vice President for marketing at Quality
Industries, concluded from market analysis that sales were dwindling for Standards' workbenches due to aggressive pricing by
competitors. Quality's workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060. Yewell determined
that a price drop to $1,060 would be necessary to retain market share and annual sales of 13,000 tables.
Cost data based on sales of 13,000 tables:

The current cost per unit is:

A. $588.
B. $523.
C. $465.
D. $637.
E. $445.

Blocher - Chapter 13 #29

Difficulty: Easy
Learning Objective: 13-1

30. The current profit per unit is:

A. $503.
B. $674.
C. $616.
D. $524.
E. $694.

Blocher - Chapter 13 #30

Difficulty: Easy
Learning Objective: 13-1

31.
Quality Industries manufactures large workbenches for industrial use. Yewell Hartnet, the Vice President for marketing at Quality
Industries, concluded from market analysis that sales were dwindling for Standards' workbenches due to aggressive pricing by
competitors. Quality's workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060. Yewell determined
that a price drop to $1,060 would be necessary to retain market share and annual sales of 13,000 tables.
Cost data based on sales of 13,000 tables:
 If the profit per unit is maintained, the target cost per unit is:

A. $488.81.
B. $556.54.
C. $515.81.
D. $423.73.
E. E)$345.42.

Blocher - Chapter 13 #31

Difficulty: Easy
Learning Objective: 13-1

32. In order to reduce costs so as to reach the desired target cost, Quality Industries should also focus on reducing the cost of:

A. Direct materials
B. Direct labor
C. Machine setups
D. Mechanical assembly

Materials, labor and setups are all under budget; mechanical assembly is over budget.
Blocher - Chapter 13 #32
Difficulty: Easy
Learning Objective: 13-1

33. Suzy Co. produces and sells three products (X, Y, and Z). The following data relate to the three products:

Which is the most profitable product if there is no constraint on labor time?

A. Product X.
B. Product Y.
C. Product Z.
D. More than one of the products has equal total contributions per labor minute.
E. There isn't enough information to answer the question.

Y has the highest contribution margin per unit

Blocher - Chapter 13 #33

Difficulty: Easy
Learning Objective: 13-2

34. Suzy Co. produces and sells three products (X, Y, and Z). The following data relate to the three products:

Which is the most profitable product if there is a constraint on labor time, so that total demand for all products cannot be met?

A. Product X.
B. Product Y.
C. Product Z.
D. More than one of the products has equal total contributions per labor minute.
E. There isn't enough information to answer the question.
X has the highest contribution per minute of labor time

Blocher - Chapter 13 #34

Difficulty: Easy
Learning Objective: 13-2

35. Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line profitability analysis for his firm's two products -
Askin and Bskin. The two products are skin care products that require a large amount of research and development and advertising. He
received the report below. Ken concluded that Askin was the more profitable product, and that perhaps cost-cutting measures should be
applied to the Bskin product.

Seventy-five percent of the research and development and selling expenses were traceable to Askin.
Profit before taxes for the Askin product, per life-cycle income statements, is:

A. $175,000.
B. $425,000.
C. $522,500.
D. $207,500.
E. E)$332,500.

($1,170,000 + 130,000)x.75 = $975,000

$1,400,000 - $975,000 = $425,000
Blocher - Chapter 13 #35
Difficulty: Easy
Learning Objective: 13-3

36. Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line profitability analysis for his firm's two products -
Askin and Bskin. The two products are skin care products that require a large amount of research and development and advertising. He
received the report below. Ken concluded that Askin was the more profitable product, and that perhaps cost-cutting measures should be
applied to the Bskin product.

Seventy-five percent of the research and development and selling expenses were traceable to Askin.
Profit before taxes for the Bskin product, per life-cycle income statements, is:

A. $175,000.
B. $425,000.
C. $522,500.
D. $207,500.
E. $332,500.

($1,170,000 + 130,000)x.25 = $325,000

$500,000 - $325,000 = $175,000
Blocher - Chapter 13 #36
Difficulty: Easy
Learning Objective: 13-3

37. The management accountant at Iang Manufacturing Co. collected the following data in preparation for a life-cycle analysis on one of its
products, a leaf blower:
 The stage of the sales life cycle the product is determined to be:

A. Introduction.
B. Growth
C. Maturity.
D. Decline.
E. Withdrawal.
Blocher - Chapter 13 #37
Difficulty: Medium
Learning Objective: 13-4

38. Which of the following is a theory of constraints (TOC) measure of product profitability that equals price less materials cost, including all
purchased components and materials handling costs?

A. Takt time.
B. Throughput margin.
C. Profitability margin.
D. Price analysis.
E. A
F. B
G. C
H. D
Blocher - Chapter 13 #38
Difficulty: Easy
Learning Objective: 13-2

39. The management accountant at Jang Manufacturing Co. collected the following data in preparation for a life-cycle analysis on one of its
products, a leaf blower:

The stage of the sales life cycle the product is in is:

A. Introduction.
B. Growth.
C. Maturity.
D. Decline.
E. Withdrawal.
Blocher - Chapter 13 #39
Difficulty: Easy
Learning Objective: 13-4

40. Bryan Inc. produces a specialty top-quality juice machine. The product, the JM50, requires four processes to be completed. Specifically,
these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations
with different completion rates:
Exterior construction can manufacture 100,000 juicer exteriors per day.
Pulp filter insertion can install 25,000 filters every 6 hours.
Painting can decorate 3,000 juicers every half hour.
Packaging can package 5,000 juicers per hour.
The plant operates 24/7, 24 hours a day every day of the week.
How many JM50 machines can Bryan Inc. manufacture per month (assume an average 30 day month)?

A. 4,320,000 juicers.
B. 3,600,000 juicers.
C. 3,000,000 juicers.
D. 3,200,000 juicers.

Exterior and Pulp filter are the constraints

Exterior: 100,000 x 30 = 3m
Pulp filter: 25,000 x 24/6 x 30 = 3m
Painting: 24/.5 x 3,000 x 30 = 4,320,000
Packaging: 24 x 5,000 x 30 = 3.6m
Blocher - Chapter 13 #40
Difficulty: Easy
Learning Objective: 13-2

41. Bryan Inc. produces a specialty top-quality juice machine. The product, the JM50, requires four processes to be completed. Specifically,
these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations
with different completion rates:
Exterior construction can manufacture 100,000 juicer exteriors per day.
Pulp filter insertion can install 25,000 filters every 6 hours.
Painting can decorate 3,000 juicers every half hour.
Packaging can package 5,000 juicers per hour.
The plant operates 24/7, 24 hours a day every day of the week.
Which function(s) is/are the bottleneck(s)?

A. Exterior construction and pulp filter insertion.

B. Pulp filter insertion.
C. Painting.
D. Packaging.
E. Exterior construction.

Exterior: 100,000 x 30 = 3m
Pulp filter: 25,000 x 24/6 x 30 = 3m
Painting: 24/.5 x 3,000 x 30 = 4,320,000
Packaging: 24 x 5,000 x 30 = 3.6m
Blocher - Chapter 13 #41
Difficulty: Medium
Learning Objective: 13-2

42. Bryan Inc. produces a specialty top-quality juice machine. The product, the JM50, requires four processes to be completed. Specifically,
these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations
with different completion rates:
Exterior construction can manufacture 100,000 juicer exteriors per day.
Pulp filter insertion can install 25,000 filters every 6 hours.
Painting can decorate 3,000 juicers every half hour.
Packaging can package 5,000 juicers per hour.
The plant operates 24/7, 24 hours a day every day of the week.
What is the least amount of monthly capacity you would have to add to the bottleneck(s) to shift the bottleneck to a different process?

A. 2,000,001 juicers per month.

B. 600,001 juicers per month.
C. 1,320,001 juicers per month.
D. 50,001 juicers per month.

Exterior: 100,000 x 30 = 3m
Pulp filter: 25,000 x 24/6 x 30 = 3m
Painting: 48 x 3,000 x 30 = 4,320,000
Packaging: 24 x 5,000 x 30 = 3.6m
Add 600,001 to Exterior and to Pulp Filter, would move the constraint to Packaging
Blocher - Chapter 13 #42
Difficulty: Hard
Learning Objective: 13-2

43. Bryan Inc. produces a specialty top-quality juice machine. The product, the JM50, requires four processes to be completed. Specifically,
these processes are exterior construction, pulp filter insertion, painting, and packaging. Each process is performed at separate workstations
with different completion rates:
Exterior construction can manufacture 100,000 juicer exteriors per day.
Pulp filter insertion can install 25,000 filters every 6 hours.
Painting can decorate 3,000 juicers every half hour.
Packaging can package 5,000 juicers per hour.
The plant operates 24/7, 24 hours a day every day of the week.
What cost management technique does this case illustrate?

A. Target costing.
B. Theory of constraints.
C. Life-cycle costing.
D. ABC analysis.
Blocher - Chapter 13 #43
Difficulty: Easy
Learning Objective: 13-2

44. Place the phases of the cost life cycle (value chain) in the correct order from upstream to downstream activities.

A. Manufacturing, R&D, Design, Customer Service, Marketing & Distribution.

B. Design, R&D, Marketing & Distribution, Manufacturing, Customer Service.
C. Customer Service, Design, R&D, Manufacturing, Marketing & Distribution.
D. R&D, Design, Manufacturing, Marketing & Distribution, Customer Service.
E. Marketing & Distribution, Customer Service, Design, R&D, Manufacturing.
Blocher - Chapter 13 #44
Difficulty: Medium
Learning Objective: 13-1

45. Target cost can be defined as:

A. Manufacturing cost - sales price.

B. Competitive price - desired profit.
C. Desired profit - market price.
D. Target price - manufacturing cost.
Blocher - Chapter 13 #45
Difficulty: Easy
Learning Objective: 13-1

46. Which of the following is the speed at which units must be manufactured to meet customer demand?

A. Production time.
B. Manufacturing time.
C. Takt time.
D. Throughput time.

Blocher - Chapter 13 #46

Difficulty: Medium
 Learning Objective: 13-2

47. Electronic Component Company is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC"
DVD player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new DVD
player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing
department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 DVD players per year.
Irrespective of the competitor's price, what is EEC's required selling price if the target profit is 25% of sales and current costs cannot be
reduced?

A. $280.00.
B. $292.50.
C. $299.00.
D. $308.50.

210/.75 = $280
Blocher - Chapter 13 #47
Difficulty: Medium
Learning Objective: 13-1

48. Electronic Component Company is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC"
DVD player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new DVD
player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing
department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 DVD players per year.
What is the target cost if target profit is 20% of sales and ECC must meet the competitive price of $220?

A. $168.50.
B. $176.00.
C. $184.25.
D. $190.00.

0.8 x $220 = $176.00

Blocher - Chapter 13 #48
Difficulty: Easy
Learning Objective: 13-1

49. Electronic Component Company is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC"
DVD player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new DVD
player that will sell for a price of $220. ECC feels that it must reduce its price to $220 in order to compete. The sales and marketing
department of ECC believes the reduced price will cause sales to increase by 15%. ECC currently sells 200,000 DVD players per year.
Assuming sales and marketing are not correct in their estimation and the volume of sales is not changed and ECC meets the competitive
price, what is the target cost if ECC wants to maintain its same income level?

A. $210.
B. $200.
C. $190.
D. $180.

$210 - ($250-$220) = $180

Or solve: 200,000x(250-210) = 200,000x(220-X); X = $180
Blocher - Chapter 13 #49
Difficulty: Medium
Learning Objective: 13-1

50. Which of the following phases are included in the sales life cycle?

A. A
B. B
C. C
D. D
Blocher - Chapter 13 #50
Difficulty: Medium
Learning Objective: 13-4

51. During the sales life cycle, which is an example of what happens during the introduction phase?

A. Sales and price decline, as do the number of competitors.

B. Sales continue to increase but at a decreasing rate. The number of competitors and product variety decline.
C. Sales increase rapidly along with an increase in product variety.
D. Sales rise slowly as customers become aware of the new product or service. Product variety is limited.
Blocher - Chapter 13 #51
Difficulty: Easy
Learning Objective: 13-4

52. During the sales life cycle, which is an example of what happens during the growth phase?

A. Sales and price decline, as do the number of competitors.

B. Sales continue to increase but at a decreasing rate. The number of competitors and product variety decline.
C. Sales increase rapidly along with an increase in product variety.
D. Sales rise slowly as customers become aware of the new product or service. Product variety is limited.
 Blocher - Chapter 13 #52
Difficulty: Easy
Learning Objective: 13-4

53. During the sales life cycle, which is an example of what happens during the maturity phase?

A. Sales and price decline, as do the number of competitors.

B. Sales continue to increase but at a decreasing rate. The number of competitors and product variety decline.
C. Sales increase rapidly along with an increase in product variety.
D. Sales rise slowly as customers become aware of the new product or service. Product variety is limited.
Blocher - Chapter 13 #53
Difficulty: Easy
Learning Objective: 13-4

54. When comparing Activity-based costing (ABC) and the Theory of Constraints (TOC), the approach each method takes toward
profitability analysis is:

A. TOC takes a short-term approach and ABC takes a long-term approach.

B. TOC takes a long-term approach and ABC takes a short-term approach.
C. Both TOC and ABC take a short-term approach.
D. Both TOC and ABC take a long-term approach.
Blocher - Chapter 13 #54
Difficulty: Easy
Learning Objective: 13-2

55. Place the five steps in implementing a target costing approach in the proper order:
1 - Determine desired profit
2 - Use kaizen costing and operational control to reduce costs
3 - Determine the market price
4 - Use value engineering to identify ways to reduce product costs
5 - Calculate the target cost at market price less desired profit

A. 3,2,1,4,5.
B. 2,5,4,1,3.
C. 4,5,1,3,2.
D. 3,1,5,4,2.
E. 5,3,2,1,4.
Blocher - Chapter 13 #55
Difficulty: Medium
Learning Objective: 13-1

56. Quality Chairs Inc. (QC) manufactures chairs for industrial use. Laura Winters, the Vice President for Marketing at QC, concluded from
market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for
$550 whereas the competition's comparable chair was selling for $495. Winters determined that a price drop to $495 would be necessary
to regain market share and annual sales of 10,000 chairs.
Cost data based on sales of 10,000 chairs:

The current cost per unit is:

A. $250.
B. $300.
C. $400.
D. $450.
E. $475.

Blocher - Chapter 13 #56

Difficulty: Easy
Learning Objective: 13-1

57.

Quality Chairs Inc. (QC) manufactures chairs for industrial use. Laura Winters, the Vice President for Marketing at QC, concluded from
market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for
$550 whereas the competition's comparable chair was selling for $495. Winters determined that a price drop to $495 would be necessary
to regain market share and annual sales of 10,000 chairs.
Cost data based on sales of 10,000 chairs:
 The current profit per unit is:

A. $250.
B. $300.
C. $400.
D. $450.
E. $475.

Blocher - Chapter 13 #57

Difficulty: Easy
Learning Objective: 13-1

58. Quality Chairs Inc. (QC) manufactures chairs for industrial use. Laura Winters, the Vice President for Marketing at QC, concluded from
market analysis that sales were dwindling for QC's standard three-foot chair due to aggressive pricing by competitors. QC's chairs sold for
$550 whereas the competition's comparable chair was selling for $495. Winters determined that a price drop to $495 would be necessary
to regain market share and annual sales of 10,000 chairs.
Cost data based on sales of 10,000 chairs:

If the profit per unit is maintained, the target cost per unit is:

A. $105.
B. $195.
C. $205.
D. $300.
E. $250.

Blocher - Chapter 13 #58

Difficulty: Easy
Learning Objective: 13-1

59. In order to reduce costs so as to reach the desired target cost, Quality Chairs should also focus on reducing the cost of:

A. Direct materials.
B. Direct labor.
C. Machine setups.
D. Mechanical assembly.

Materials, machine hours and finish/pack are all under budget; labor hours are over budget.
Blocher - Chapter 13 #59
Difficulty: Easy
Learning Objective: 13-1

60. Which of the following is a common form of value engineering in which the design team prepares several possible designs of the product,
each having similar features with different levels of performance and different costs?

A. Cost analysis.
B. Variable design engineering.
C. Cost-based value engineering.
D. Functional analysis.
E. Design analysis.
Blocher - Chapter 13 #60
Difficulty: Easy
Learning Objective: 13-1

61. Which of the following is a common type of value engineering in which the performance and cost of each major function or feature of the
product is examined?

A. Cost analysis.
B. Variable design engineering.
C. Cost-based value engineering.
D. Functional analysis.
E. Design analysis.
Blocher - Chapter 13 #61
Difficulty: Easy
Learning Objective: 13-1

62. A type of strategic pricing based on analytical methods is used to:

A. Optimally determine the best price.

B. Utilize knowledge of consumer behavior in setting price.
C. More accurately determine life cycle costs as a basis for setting price.
D. Employ improved design methods that reduce cost and improve price.
Blocher - Chapter 13 #62
Difficulty: Medium
Learning Objective: 13-4

63. Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to
determine the price of its product.

If Johnson determines price using a 40% markup of full manufacturing cost, the price is:

A. $262.50
B. $306.00
C. $375.00
D. $364.29
E. $330.00

Blocher - Chapter 13 #63

Difficulty: Medium
Learning Objective: 13-4

64. Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to
determine the price of its product.

If Johnson determines price so as to receive a desired return on assets of 15%, the price is:
A. $262.50
B. $306.00
C. $375.00
D. $364.29
E. $330.00

Blocher - Chapter 13 #64

Difficulty: Medium
Learning Objective: 13-4

65. Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to
determine the price of its product.

If Johnson determines price using a desired gross margin percentage of 50%, the price is:

A. $262.50
B. $306.00
C. $375.00
D. $364.29
E. $330.00

Blocher - Chapter 13 #65

Difficulty: Medium
Learning Objective: 13-4

66. Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to
determine the price of its product.

If Johnson determines price using a desired return on life cycle costs of 30%, the price is:
A. $262.50
B. $306.00
C. $375.00
D. $364.29
E. $330.00

Blocher - Chapter 13 #66

Difficulty: Medium
Learning Objective: 13-4

67. Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to
determine the price of its product.

If Johnson determines price using a 20% markup of life cycle cost, the price is:

A. $262.50
B. $306.00
C. $375.00
D. $364.29
E. $330.00

Blocher - Chapter 13 #67

Difficulty: Medium
Learning Objective: 13-4

68. Precision Instruments, Inc. is a national firm manufacturing a full line of surgical tools for veterinarians. Recent technological
developments have produced a significantly higher grade of steel to make surgical instruments and tools. All of Precision's specialized
equipment is designed and calibrated to produce surgical tools using current surgical steel stock. Precision's management wants to begin
using the new grade of surgical steel, but recognizes the need to redesign and calibrate existing production equipment and/or purchase
newly designed production equipment. Redesign of existing equipment can be done in-house, but requires components from the Swedish
manufacturer of the equipment. New equipment will also come from Sweden, but its cost is almost double that paid seven years ago for
the existing equipment.
Required: Identify the constraints Precision will face as it chooses to upgrade existing equipment or purchase new equipment. There is
considerable market pressure to shift to use of the new steel stock for production of surgical tools.

Please see Feedback for answers.

Feedback: If Precision chooses to redesign and calibrate existing production equipment, components that must be ordered will take some time
to arrive before in-house installation. New equipment will probably take even longer to arrive. In both cases, some delays in production
should be expected during the changeover whether the company decides to redesign or replace the equipment. Once the redesigned or new
equipment is productive, a steady supply of the new grade surgical steel must be assured, perhaps from new suppliers. The sales department
must pre-sell the new steel so as to avoid customer resistance to the change. Finally, cost budgets for the alternative action chosen should be
compared with actual costs incurred as a control measure.
Blocher - Chapter 13 #68
Difficulty: Medium
Learning Objective: 13-2

69. DualShaft Inc. manufactures a wide variety of parts for recreational boating, including boat engines. The component is purchased by
OEM (original equipment manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell
for $790, and sales volume averages 38,000 units per year. Recently, DualShaft's major competitor lowered the price of the equivalent
part to $710. The market was very competitive, and DualShaft realized it had to meet the new price or lose significant market share. The
controller assembled the following data for the most recent year.
Cost and Usage for Production of 38,000 Units:

Required: 1. Calculate the target cost for maintaining current market share and profitability.
2. How should the company attempt to reduce cost to meet the new target cost?

Please see Feedback for answers.

Feedback: 1.

Target cost is $392, a $70 reduction over the current cost where $472 = $17,936,000/38,000 and $318 = $790 - $472
2. Costs can be reduced through one of two approaches - (1) product redesign that removes costs by simplifying the product or production
process, and (2) continuous improvement in the manufacturing process that will increase efficiency and reduce cost. For example, while
actual costs for direct and indirect labor are less than the budget, materials costs are substantially higher than the budget. Costs could be
reduced by reducing the over-spending on materials. Also, materials handling, setups, rework and inspection are all non-value-adding
activities, and should be reduced as much as possible, another way to reduce costs through continuous improvement.
Blocher - Chapter 13 #69
Difficulty: Easy
Learning Objective: 13-1

70. Cling Co. produces and sells three products (X, Y, and Z). The following data relate to the three products. Labor is a fixed cost.

Required: (1) Which is the most profitable product if there is no labor constraint? (2) Which is the most profitable product if there is a
labor constraint?

Please see Feedback for answers.

Feedback: (1) Contribution for each product

X: $160 -80 = $80
Y: $190-100 = $90
Z: $180-110 = $70
The most profitable product is Y.

(2)
Most profitable product is Z.
Blocher - Chapter 13 #70
Difficulty: Easy
Learning Objective: 13-2

71. Pat Baldwin owns and operates Outstanding Quality Rentals (OQR). OQR offers kayak rentals and shuttle service on the Petaholee River.
Customers can rent kayaks at one station and enter the river there. They can then exit at one of two designated locations to catch a shuttle
to return them to their vehicles. Following are the costs involved in providing this service each year.

OQR began business three years ago with a $36,000 expenditure for a fleet of 50 kayaks. These are expected to last seven more years, at
which time a new fleet will be purchased. Pat is satisfied with the steady average rentals per year of 9,900.
Required: What price should Pat charge per rental for the business to make a thirty percent life cycle profit?

Please see Feedback for answers.

Feedback:

Blocher - Chapter 13 #71

Difficulty: Medium
Learning Objective: 13-4

72. Bell Company produces and sells three products (A,B,C). The following data relate to the three products.

Required: (1) Calculate the contribution per labor minute for each product. (2) Determine the best product mix. Assume there are five
employees, and given time for breaks, training, and regular meetings, there are a total of 2,200 minutes available per day.

Please see Feedback for answers.

Feedback: (1) Contribution per unit

A: $50 = $100 - $50
B: $60 = $120 - $60
C: $45 = $105 - $60

Contribution per constraint minute

A: $50/12 = $4.17
B: $60/17 = $3.53
C: $45/7 = $6.43

(2) Product mix decision

All of C 100 x 7 min = 700 min
All of A 120 x 12 min = 1,440 min
Surplus for B = 60 min
60/17 = 3.53 units
 Blocher - Chapter 13 #72
Difficulty: Medium
Learning Objective: 13-2

73. The management accountant at the Huang Manufacturing Company has collected the following data in preparation for a life cycle
analysis on one of its products, a leaf blower:

Required: Determine what stage of the sales life cycle the leaf blower is in.

Please see Feedback for answers.

Feedback: It seems that sales are stabilizing since they only grew 1.5% over the past year and the average annual growth over the past four
years was 19.6%. The unit sales price has also slowed, and the unit profit is beginning decline. As a result, total profit is starting to level off.
Because of these signs, it seems that the leaf blower is in the early maturity stage.
Blocher - Chapter 13 #73
Difficulty: Easy
Learning Objective: 13-4

74. Warrenton Industries manufactures hydraulic components for large automated machine tools. Myles English, the Vice President for
Marketing, has concluded from his market analysis that sales are dwindling for one of the firm's products main products, a hydraulic
valve, because of aggressive pricing by competitors. Warrenton's product sells for $525 whereas the competition's comparable part is
selling in the $425 range. Mr. English has determined that a price drop to $400 is necessary to regain market share and annual sales of
1,000 units.
Cost data based on sales of 1,000 valves:

Required:
(1) Calculate the current cost and profit per unit.
(2) How much of the current cost per unit is attributable to non-value added activities?
(3) Calculate the new target cost per unit for a sales price of $400 if the profit per unit is maintained.
(4) What strategy do you suggest for Warrenton to attain the target cost calculated in part (3)?

Please see Feedback for answers.

Feedback: (1) Cost per unit = ($55,800 + 155,000 + 95,000 + 140,000)/1,000 = $445.80 per unit
profit per unit = ($525 price per unit - $445.80 cost per unit) = $79.20 per unit
(2) Machine setups do not add value
95,000 total cost/1,000 units = $95 per unit of non-value added costs
(3) $400 price per unit - $79.20 profit per unit = $320.80 per unit target cost
(4) Cost must be reduced by $445.80 - $320.80 = $125. First and foremost, Warrenton should focus on getting back on budget. Inefficiencies
in materials usage have led to an extra $5.07/unit in cost [(1,000/11,000) x $55,800]/1,000. Also, getting labor on budget would save an
additional $17.88/unit [(600/5,200) x $155,000]/1,000. Cutting 1,000 hours from mechanical assembly through product innovation or a
process change would provide $35 of savings [(1,000/4,000) x $140,000]/1,000. This would get costs down to $387.85 per unit ($445.80 -
$5.07 - $17.88 - $35). Part of the remaining $67.05 ($125 - $5.07 - $17.88 - $35) of savings needed to attain the $425 target cost could come
from reducing the non-value- added costs from machine setups. This could be achieved through product design and manufacturing process
reengineering.
Blocher - Chapter 13 #74
Difficulty: Medium
Learning Objective: 13-1

75. Gail Johnston is the CFO of Lancet Technologies, a manufacturer of parts and supplies for the cable TV industry. Gail has developed an
analysis of the profitability of the firm's two main product lines, cable hardware, and cable supplies. Based on the analysis, she concludes
that cable hardware is the most profitable of the firm's product lines.

Required: (1) Explain why Gail may be wrong in her assessment of the relative performances of the two product lines. (2) Suppose that
80 percent of the R & D and selling expenses are traceable to Hardware line. Prepare life-cycle income statements for each product and
calculate the return on sales. What does this tell you about the importance of accurate life-cycle costing?

Please see Feedback for answers.

Feedback: (1) Gail's analysis based on the prepared report fails to consider the very significant amount of research and development and
selling costs. It is unlikely that the two products consumed equal shares of these costs. As the calculations in part 2 below illustrate, the
determination of profitability can be significantly affected by the tracing of these non-manufacturing costs each product. The idea is that life-
cycle costing, including upstream and downstream costs (research and development, and selling costs, respectively) as well as the
manufacturing costs, is necessary to get an accurate picture of each product's overall profitability.

(2)

The life-cycle product line profitability analysis shows a much different result. This illustrates that including the upstream and downstream
costs can be very important in getting a useful analysis of product profitability. Failing to include these non-manufacturing costs, as Gail did
at first, may lead to incorrect marketing and management decision making, as the firm may have a biased and incorrect idea of the most
profitable product(s).
Blocher - Chapter 13 #75
Difficulty: Medium
Learning Objective: 13-3

76. Jamestown Furniture Co. is a small, but fast-growing manufacturer of living room furniture. Its two principal products are end tables and
sofas. There are five processes in the manufacturing at Jamestown: Cutting the lumber, cutting the fabric, sanding, staining, and assembly.
Jamestown has one employee working in fabric cutting and one employee working in staining. These are relatively skilled workers, and
could be replaced only with some difficulty. The cutting and sanding operations are performed by two workers each, and while there is
some skill to these operations, it is less critical than for staining and for fabric cutting. Assembly is the least skill-based process, and is
currently done by one full-time employee and a group of part-timers who provide a total of 175 minutes of working time per week. The
other employees work a 40-hour week, with 5 hours off for breaks, training, and personal time. Assume a four week month, and that by
prior agreement, any of the employees can be switched from one task to another. The current demand for Jamestown's products and sales
prices are provided below. Jamestown expects demand to increase significantly in the coming months (this depends on whether it is able
to successfully obtain the order it is negotiating to get from a motel chain). The materials cost for the table is $150 and $275 for the sofa.

The time required for each activity and the total time available are shown below.
Required: What is the most profitable production plan for Jamestown? Explain your answer with supporting calculations.

Please see Feedback for answers.

Feedback: Identify Most Profitable Product

The constraint is Stain, where the required time per unit for tables is 250/250 = 1.0 and for sofas is 120/150 = .8

Identify Most Profitable Product Mix

Blocher - Chapter 13 #76

Difficulty: Medium
Learning Objective: 13-2

77. PureSwing Golf, Inc. manufactures swing analyzer systems for golf instructors. Two of its systems, Pure1000 and the Pure5000 have
these characteristics:
 The Pure1000 sells for $1,000 installed and the Pure5000 sells for $1,750 installed.
Required: 1. What are the current profit margins on both systems? 2. PureSwing's management believes that it must drop the price on the
Pure1000 to $800 and on the Pure5000 to $1,450 to remain competitive in the market. Recalculate profit margins for both products at
these price levels. 3. Describe two ways that PureSwing could cut its costs to get the profit margins back to their original levels.

Please see Feedback for answers.

Feedback: Current profit margins:

Recalculate profit margins:

Recalculated Profit Margins
Pure1000 16% ($800 - $670)/$800
Pure5000 17% ($1,450 - $1,210)/$1,450
3. The installation costs are the largest component of cost and this category could have room for improvement. By redesigning the layout of
the systems or finding components that integrate more readily, the installation times could then be reduced. Also, costs could be lowered by
contractual bargaining with electricians to reduce the per hour rates for installation.
The video equipment and motion sensors are sources of significant costs, but decreasing the quality or quantity of these items would
substantially change the effectiveness and value of the swing analyzer systems.
Blocher - Chapter 13 #77
Difficulty: Easy
Learning Objective: 13-1

78. PharmCo Manufacturing operates a contract manufacturing plant in London, England. The plant produces a variety of pharmaceutical
drugs for companies around the world. Cycle time is a critical success factor for PharmCo, which has developed a number of measures of
manufacturing speed. The company has studied the matter and found that competitive contract manufacturers have manufacturing cycle
efficiency (MCE) time of about 40 percent. When last measured, PharmCo's MCE was 35 percent. At PharmCo, cycle time is defined as
beginning at the point when the order taking is complete.
Some key measures from the most recent month's production, averaged over all the jobs during the period, are as follows:

Required: Determine the MCE time for the most recent month. What can you infer from the MCE time that you calculated?

Please see Feedback for answers.

Feedback:

Note that new product development time and order taking time are not considered part of the manufacturing cycle and are excluded from
cycle time.
The level of MCE is best interpreted by reference to the prior MCE values for the firm or to an industry average. A number closer to one is
better. When comparing to an industry average, management should make sure that the measures are calculated in the same manner. In this
case, PharmCo has improved significantly on its MCE relative to the prior data, but is still just slightly below the industry average.
Blocher - Chapter 13 #78
Difficulty: Easy
Learning Objective: 13-2

79.

AirTravel Inc. manufactures a wide variety of parts for commercial aircraft, including airplane engines. The component is purchased by
OEM (original equipment manufacturers) such as Boeing, for use in the larger and more powerful outboards. The units sell for $10,000,
and sales volume averages 2,000 units per year. Recently, AirTravel's major competitor lowered the price of the equivalent part to $9,500.
The market was very competitive, and AirTravel realized it had to meet the new price or lose significant market share. The controller
assembled the following data for the most recent year:
Cost and Usage for Production of 2,000 Units:
 Required: Calculate the target cost for maintaining current market share and profitability.

Please see Feedback for answers.

Feedback: The target cost is $7,500 per unit:

where $8,000 = $16,000,000/2,000 units

Blocher - Chapter 13 #79
Difficulty: Easy
Learning Objective: 13-1

80. Amanda Jones owns and operates Motorcycle Rentals Inc.(MRI). Customers can rent a motorcycle in one city and then return it at one of
three designated cities. Following are the costs involved in providing this service each year:

Motorcycle Rentals Inc. began business two years ago with a $400,000 expenditure for a fleet of 45 motorcycles. These are expected to
last five more years, at which time a new fleet will be purchased. Jeremy is satisfied with the steady average rentals per year of 10,000.
Required: 1. What price should Jeremy charge per rental for the business to make a twenty percent life-cycle profit?
2. What price should Jeremy charge per rental for the business to make a before-tax thirty percent return on investment?

Please see Feedback for answers.

Feedback: (1)The life cycle price is $86.25.

(2) The desired return on investment price is $81

Blocher - Chapter 13 #80

Difficulty: Medium
Learning Objective: 13-4

81.

Excel Manufacturing has received an order for 5,000 units of its only product, Excel-A. Excel is considering a variety of methods to
determine the price of the order. Some key information about Excel follows:
 Required: 1. Determine the price using the markup of 40% of full manufacturing costs.
2. Determine the price using a 20% markup on life-cycle costs.
3. Determine the price assuming a desired 50% gross margin percentage.
4. Determine the price assuming a desired 30% return on life-cycle costs.
5. Determine the price assuming a desired 20% return on investment

Please see Feedback for answers.

Feedback:

Blocher - Chapter 13 #81

Difficulty: Hard
Learning Objective: 13-4

82. Marchand's Restaurant had developed an excellent reputation in recent years for its price, menu, and atmosphere. The restaurant is now
completing a strategic analysis to determine whether it should make adjustments in its menu, pricing, or wait service, to better meet
customer needs and to become more competitive. Marchand's has chosen to use Quality Function Deployment (QFD) to analyze customer
preferences and its cost structure. The analysis focuses on costs that can be managed in the short term, and therefore excludes facility
related costs.
The data that Marchand's has collected so far includes information about customer preferences (Marchand's surveyed customers regarding
their preferences for taste, comfort and atmosphere) and the unit cost of the three key elements of its service: food preparation, wait staff,
and food ingredients.

Next, Marchand completed an analysis, using the expertise of its managers, wait staff and kitchen staff, to determine the contribution of
each of the three elements of its service to satisfying the three components of customer satisfaction.

Required: Determine which of the three cost elements (food preparation, wait staff, and food ingredients) should be given increased or
decreased emphasis based on a QFD analysis. Explain your answer with appropriate calculations.

Please see Feedback for answers.

Feedback:

Marchand's should reallocate resources from food preparation and wait staff, to food ingredients, based on the QFD analysis. The analysis
also shows the key importance of the wait staff, so Marchand's should continue to focus on retaining the best waiting staff and motivating and
rewarding them appropriately.
Blocher - Chapter 13 #82
Difficulty: Hard
Learning Objective: 13-1

83. High Point Furniture manufactures a high-quality dining table, which is offered in both oak and walnut. The demand for the tables is 800
units for the oak table and 1500 for the walnut table. The tables are priced at $495 and $995 for the oak and walnut tables, respectively.
The materials cost is $210 for the oak table and $430 for the walnut table. In addition, High Point has the following manufacturing
information for the four manufacturing processes (receiving, preparation, assembly, and finishing), showing the amount of time (in
minutes) required for each table for each process, and the total minutes of time available for each process.

Required: 1. Which process(es), if any, are constraints for the current level of demand?
2. Given any constraints identified in part (1) above, determine the best production and sales plan for the two types of tables.
3. What is the overall contribution from the production plan you determined in part (2) above?

Please see Feedback for answers.

Feedback: 1. There is one constraint: the assembly process.

2. The best product mix is based on the oak table having a higher contribution per unit of assembly time. The best production mix is all 800 of
the oak tables and to utilize the remaining capacity in the assembly process to manufacture 1,280 walnut tables.
3. The contribution of the best sales mix is $951,200

Blocher - Chapter 13 #83

Difficulty: Hard
Learning Objective: 13-2

84.

Life Cycle Costing Income Statements

The following revenue and cost data are for Turner Manufacturing's two radial saws. The L40 is for the commercial market and the L50 is
for industrial customers. Both products are expected to have three-year life cycles.
 Required: 1. How would a product life-cycle income statement differ from the above income statements? 2. Prepare a three-year life-cycle
income statement for both products. Which product appears to be more profitable and why?
Prepare a schedule showing each cost category as a percentage of total annual costs. What do you think this indicates about the
profitability of each product over the three-year life cycle?

Please see Feedback for answers.

Feedback: 1. A product life cycle statement would aggregate the three years into one that shows the totals in each category for the life of the
product.

2. L50 appears to be more profitable; 771 vs. 670 life cycle profits. The most significant cost for each is the manufacturing cost but as a
percentage of revenues there is not much difference between the products. The L50 is more profitable for the life-cycle because the L40 bears
significantly more research and development and marketing costs, relative to revenue, than does L50.
3.

The analysis shows how the distribution of costs for both products shifts from research and development in the first year to manufacturing and
customer service in the last year. The shift is most pronounced for L40 which has high development costs.
Blocher - Chapter 13 #84
Difficulty: Medium
Learning Objective: 13-3
 13 Summary
Category # of Questions
AACSB: Analytic 3
Blocher - Chapter 13 84
Difficulty: Easy 45
Difficulty: Hard 5
Difficulty: Medium 34
Emerging Issues: Strategy 1
Learning Objective: 13-1 39
Learning Objective: 13-2 22
Learning Objective: 13-3 5
Learning Objective: 13-4 18