Chapter 13

Hoffman Company collected the following information regarding to products: Product A Product B Price $600 $1,200 Materials cost $300 $750 Machine minutes 30 60 Assuming that machine minutes is the constraint, what is the throughput margin per minute for product A? $300 $10 $20 $7.50

$10 ($600- $300) / 30 = $10 per minute

Given the following information for a product: Full manufacturing cost $200 Total life-cycle costs $220 Total assets committed to the product: $2.75 million The company uses a markup rate of 45%, has a desired gross product percentage of 35% and a desired return on assets of 15%. Calculate the price if this company decided to use full manufacturing cost plus desired return on assets for this product and expects to sell a total of 9,375 units. $244 $230 $268.40 $270

$244 ($2,750,000 x 15%) / (9,375 x $200) = 22% markup rate Price = $200 x 122% or $244

Given the following information for a product: Full manufacturing cost $200 Total life-cycle cost $220 Total assets committed to the product: $2.75 million The company uses a markup rate of 45%, has a desired gross profit percentage of 35% and a desired return on assets of 15%. Calculate the price if this company decides to use full cost and desired gross margin percentage for this product. $307.69 $270.00 @338.46 $571.43

$307.69 $200 / (1-.35)

Which of the follow is NOt a cost-based pricing model? a.) Life-cycle plus markup b.) full manufacturing cost plus markup c.) strategic pricing d.) full cost plus desired gross margin percentage

- Strategic pricing

When performing a TOC analysis, product price - all materials cost = "___________ _________"

- throughput margin

Starting with the first step at the top, put the five steps of theory constraint analysis in proper order: -Redesign the manufacturing process -Add capacity to the constraint -identify the constraint -maximize the flow through the constraint -determine the most profitable product mix given the constraint

1.) Identify the constraint 2.) Determine the most profitable product mix given the constraint 3.) Maximize the flow through the constraint 4.) Add capacity to the constraint 5.) Redesign the manufacturing process

Place the target costing steps in the proper order: -determine market price -use kaizen costing and operational control to further reduce costs -use value engineering to identify ways to reduce product costs -calculate the target cost -determine desired profit

1.) determine market price 2.)Determine desired profit 3.) calculate the target cost 4.) use value engineering to identify ways to reduce products costs 5.) Use kaizen costing and operational control to further reduce costs

What are the four methods to cost information for pricing is:

1.) full manufacturing cost plus markup; 2.)life-cycle cost plus markup; 3.)full cost and desired gross margin percent; 4.) full cost plus desired return on assets.

A company collected the following information regarding one of its products: The % contribution of each component to each customer criterion appears below: Component Safety Performance Features A 20% 10% 60% B 30% 40% 10% C 50% %0% 30% The relative importance of each criteria appears below: Safety 45% Performance 30% Features 25% The importance index of Component A is: 90% 28% 27% 45%

27% (20% x 45%) + (10% x 30%) + (60% x 25%) = 27%

A manufacturing company collected the following information related to an order: Processing time: 2 days Inspection time: 1 day Materials handling time: 1 day Waiting time: 2 days Based on the above information the cycle time is: 4 days 3 days 6 days 2 days

6 days

Assume that , after allowing for breaks and down time, a manufacturing plant operates 7 hours per day five days per week and has a weekly demand of 350 units. Takt time is __________ minutes per unit.

= 6 (7 X 5 X 60) = 2,100 minutes 2,100 / 350 units = 6 minutes per unit

An important method that integrates product design with manufacturing and marketing throughout the product's life cycle is "_____ _________"

Concurrent engineerig

Phase 2: Growth in Sales Life Cycle Phases

Focus shifts to new product development and pricing strategy as competition develops

What are the strategic pricing for phases of the sales life cycle Introduction: this phases involves little competition, and sales rise slowly as customers become aware of the new product or service Growth: sales begin to increase rapidly as does product variety. Maturity: sales continue to increase but at a decreasing rate Decline: sales and prices decline, as do the number of competitors.

It is in order

Full cost and Desired Gross MArgin Percentage

Price= Full manufacturing cost / (1- Desired gross margin percentage)

What is the formula for the life-cycle cost plus markup approach to pricing?

Price= Total life-cycle cost x markup

True or False: Target costing can both save time and increase time that must be spent in an organization.

True

A company has determined the following information regarding one of its products: Components Importance Index Relative Cost X 24.4% 51.9% Y 32.0% 29.6% Z 43.6% 18.5% 100% 100% The analysis reveals that too much is being spent on Component " _" and not enough is being spend on Component "____-"

X; Z

The speed at which units must be manufactured to meet customer demand is: a.) Takt time b.) cycle Time D.) manufacturing cycle efficiency d.) processing time

a.) Takt time

The type of value engineering used for industrial and specialized products is "________ ____________" a.) design analysis b.) functional analysis

a.) design analysis

When using target costing, the balancing of costs, featuress, ad quality takes place primarily in the: a.) design phases b.)customer service phase c.)sales phases d.) production phase

a.) design phases

Which of the following statements regarding sales life cycle are true? a.) Firms become price takes rather than price setters in the latter phases b.) A differentiation strategy is usually followed in the early phases c.) price tend to be relatively low in the introduction phase d.) Price tend to be high during the growth phase

a.) firms become price takers rather than price setters in the latter phases b.) a differentiation strategy is usually followed in the early phases d.) prices tend to be high during the growth phase

The type of value engineering employed in firms with products that have a large number of features is __________ analysis. a.) functional b.) design c.) concurrent

a.) functional

Options for managing costs to reach the target level include: a.) seeking higher productivity b.) reducing the quality of materials used in production c.) redesigning products and services d.) integrating new manufacturing technology

a.) seeking higher productivity c.) redesigning products and services d.) integrating new manufacturing technology

Computer-based databases that include comprehensive information about the firm's cost drivers are cost: a.)tables b.)objects c.) methods

a.) tables

A technique that focuses on short-term product mix is: a.) theory of constraints b.) quality function deployment c.) target costing d.) activity-based costing

a.) theory of constraints

The methods and techniques that help support the kaizen process include: a.) total quality management b.) theory of constraints c.) flexible manufacturing systems d.) value engineering

a.) total quality management b.) theory of constraints c.) flexible manufacturing system

Constraints

activities or policies that slow the product's total cycle time or limit throughput

A firm has two options for managing cost to reach the target level-new technology or redesign. these options __- mutually exclusive a.) are b.) are not

b.) are not

A company has determined the following information regarding one of its products: Components Importance index Relative Cost A 26.4% 41.9% B 22.0% 29.6% C 51.6% 28.5% 100% 100% Based on this analysis, the company should: a.) the company should stop spending money on component B because it is least important to customers b.) the company should spend more money on component C c.) the company should spend more money on component A D.) the company should spend less money on Component A E.) the company should spend less money on Component C

b.) the company should spend more money on Component C D.) the company should spend less money on Component A

Which of the following is NOT a benefit of target costing? a.) more effective and efficient design b.) product designs focused on customer value c.) development of detailed cost data d.) increased communication and cooperation among departments

c.) development of detailed cost data this is a cost associated with target costing

When customer preference for a product change frequently, the most appropriate value engineering approach is: a.) concurrent engineering b.) group technology analysis c.) functional analysis d.) design analysis

c.) functional analysis This approach is best suited to products for which consumer preferences frequently change

The combination of _____ and total quality management can result in lower service/warranty cost a.) cost tales b.) target costing c.) group technology d.) concurrent engineering

c.) group technology

When a company has reached a point when improved product designs are already in place the focus changes to continuous improvement efforts, which is called: a.) value engineering b.) target costing c.) functional analysis d.) kaizen

d.) Kaizen

Manufacturing cycle efficiency equals: a.) production time available / customer demand b.) lead time + throughput time c.) Amount of time between receipt of a customer order and shipment of the order d.) Processing time / total cycle time

d.) Processing time / Total cycle time

Available manufacturing time / Customer demand is the formula for: a.) cycle time b.) delivery time c.) manufacturing cycle efficiency d.) takt time

d.) Takt time

The cost-based pricing approach that directly adds a markup to total variable and fixed manufacturing costs is: a.) full cost and desired gross margin percentage b.) life-cycle cost plus markup c.) life-cycle cost plus desired return on assets d.) full manufacturing cost plus markup

d.) full manufacturing cost plus markup

The sequence of processes in a manufacturing process and the amount of time each requires are shown in a(n) "_________ _____________"

flow diagram

Phase 1: Introduction in sales life cycle

focus of management is on design, differentiation, and marketing.

Sales, product variety and competition increase rapidly during the ___________ phase of the sales life cycle

growth

Target cost= Competitive price- desired "_____"

profit

Phase 3: Maturity in Sales Life Cycle Phases

sales continue to increase but at a decreasing rate (Management's attention turns to cost control, quality, and service as the market continues to become more competitive)

Phase 4: Decline

salles and prices decline, as do the number of competitors. (management's attention turns to cost control, quality, and service as the market continues to become more competitive.)

Quality function deployment

the integration of value engineering, marketing analysis, and target costing to assist in determining which components of the product should be targeted for redesign

True or false: Under a cost leadership strategy , prices are set by the most efficient producers.

true

Value Engineering

used in target costing to reduce product cost by analyzing the trade-offs between different types of product functionality and total product cost.