Chapter 3 - Costing Techniques

Question 1

What is target costing?

Answer 1

Pro-active cost control system

Question 2

How is target costing calculated?

Answer 2

Selling price - Target profit

Question 3

What costs get locked in at the design stage?

Answer 3

• Design specs
• Number of components
• Design of components
• Type of packaging
• Number of spare parts

Question 4

What are the 6 stages of target costing?

Answer 4

1. Develop product concept
2. Determine target price
3. Calc desired target profit
4. Calc target cost (sell price - target profit)
5. Calc if cost gap exists
6. Take steps to close if exists

Question 5

What is the target cost gap formula?

Answer 5

Estimated product cost - Target cost

Question 6

What is the process of value analysis?

Answer 6

Understanding what features are essential to customer perceived quality

Question 7

What are the reasons for measuring manufacturing performance?

Answer 7

• See who is responsible for any cost excess and offer support
• Judge whether cost planning activities were effective

Question 8

What can target costing be used for?

Answer 8

Controlling costs throughout a product’s life

Question 9

What are examples of tech eliminating costs as a barrier to entry?

Answer 9

• CAD software become a commodity
• 3D printing
• Digital tech lowering fixed costs

Question 10

Is standard costing a push/pull system?

Answer 10

Push - mark up added onto selling price

Question 11

Is Standard costing an internal/external tool?

Answer 11

Internal

Question 12

Is standard costing a cost control/reduction technique?

Answer 12

Cost control

Question 13

Is standard costing reactive/proactive?

Answer 13

Reactive - selling price of new product determined by estimating standard cost and adding margin

Question 14

Is target costing a push/pull system?

Answer 14

Pull - requires understanding of market demand and competition before price is set

Question 15

Is target costing an internal/external tool?

Answer 15

External - driven by market prices

Question 16

Is target costing a cost control/reduction technique?

Answer 16

Cost reduction

Question 17

Is target costing reactive/proactive?

Answer 17

Proactive - starts before design of product

Question 18

What are the significant differences between target and standard costing?

Answer 18

• Focus on long term cost
• Market orientated approach
• Focus on continual improvement
• Team approach
• Target costs set before major dev costs are incurred

Question 19

What does value analysis do?

Answer 19

Maintain or enhance the esteem value of a product at the lowest possible cost

Question 20

What does value engineering relate to?

Answer 20

Products that have not yet been produced

Question 21

What are the different types of value?

Answer 21

• Cost
• Exchange
• Use
• Esteem

Question 22

What is the method of value analysis?

Answer 22

• Determine product function
• Determine existing costs
• Develop alternative solutions
• Adopt questioning attitude
• Evaluate alternatives
• Implement recommendations

Question 23

What is functional analysis?

Answer 23

Breaking down a product’s functions and estimating how much customers are willing to pay for these features

Question 24

What are the primary activities in Porter’s value chain?

Answer 24

• Inbound logistics
• Operations
• Outbound logistics
• Marketing and sales
• Service

Question 25

What are primary activities?

Answer 25

Activities which involve the physical movement of raw materials and finished goods

Question 26

What are support activities?

Answer 26

Provide support to primary activities

Question 27

What are the support activities in Porter's value chain?

Answer 27

- Procurement - Technology dev - HR resource management - Firm infratsurcture

Question 28

What are Porter's generic stratgies

Answer 28

- Cost leadership - Differentiation

Question 29

What is the methodology that Shank and Govindarajan advocated for evaluating value chain?

Answer 29

- Identify industry's value chain and assign costs - Diagnose cost drivers regulating each value activity - Develop sustainable cost advantage

Question 30

What are the 5 stages of the product life cycle?

Answer 30

- R+D - Intro - Growth - Maturity - Decline

Question 31

What factors need to be managed in the product life cycle?

Answer 31

- Design costs - Minimise time to market - Maximise length of life cycle itself

Question 32

How are life cycle costs classified?

Answer 32

- Dev costs - Design costs - Manufacturing costs - Marketing costs - Distro costs

Question 33

What actions should be taken during asset lifecycle costing?

Answer 33

- Encourage whole-life product profitability mindset - Take customer perspective - Consider consumption and transformation of natural capital in creating/managing products - Think about societal impact

Question 34

What actions should NOT be taken during asset lifecycle costing?

Answer 34

Avoid treating natural capital as costless

Question 35

What are the steps to traditional pricing and costing?

Answer 35

1. Develop product 2. Estimate production cost 3. Set price 4. Calc variances 5. Exercise cost control as required

Question 36

What are the criticisms of traditional cost/pricing?

Answer 36

- No external focus - Reactive

Question 37

What techniques can be used to close the cost gap?

Answer 37

- Value analysis - Functional analysis - Reverse engineering

Question 38

Does target costing consider external factors?

Answer 38

Yes

Question 39

How can value be added?

Answer 39

- Carry out activities more efficiently - Create linkages in the chain

Question 40

Does traditional accounting directly associate the cost of research and development to the product cost?

Answer 40

NO