Chartered University College

F5-Performance Management
Class Test-1
TIME ALLOWED: 100 mins
TOTAL MARKS: 50
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SECTION A
Out Of TWENTY FIVE questions, please answer any TWENTY As
per your Choice.
Each question is worth 2 marks:
1. X Co uses a throughput accounting system. Details of product A, per unit, are as
follows:
Selling price
$320
Material costs
$80
Conversion costs
$60
Time on bottleneck resource
6 minutes
What is the return per hour for product A?
A $40
B $2,400
C $30
D $1,800

2. Calculate: Target cost gap = __________________________ Target cost.

3. The following statements have been made about Activity Based Costing (ABC):
(1) In a system of ABC, there is no under- or over-absorption of overheads.
(2) In a system of ABC, a larger proportion of overheads are attributed to low
volume products Than in a traditional absorption costing system.

Which of the above statements is/are true?

A 1 only
B 2 only
C Neither 1 nor 2
D Both 1 and 2
4. The following statements have been made about target costing:
(1) When applying target costing to a product in the design stage of development,
the
Production specification may be changed in order to achieve the target cost.
(2) Target costing must take into consideration all the expected lifetime costs of the
product.
Which of the above statements is/are true?
A 1 only
B 2 only
C Neither 1 nor 2
D Both 1 and 2
5. Which one of the following is NOT a way of maximizing return over a
product life cycle?
A Design costs out of the product.
B Minimize the time to market.
C Maximize the break even time.
D Maximize the length of the life span.

6. ______________________is the process of determining the costs of products,

services or activities.

7. Advocates of _____________________ take the view that only the variable costs of
making and selling A product or service should be identified

8. _______________________ occurs when overheads incurred do not equal overheads

absorbed.
9. In _____________________ closing inventories are valued at marginal
(variable)
production Cost.
10. ____________ costing is more useful for decision-making purposes, but
____________
costing is Needed for financial reporting purposes to comply with accounting
standards.
11. An __________________ cost is not a variable cost.
12. ABC recognizes the complexity of modern manufacturing by the use of multiple
cost pools.
True or false?
13. The following statements have been made about lifecycle costing:
(1) A lifecycle costing exercise enables an organization to appraise the profitability
over
The whole life of the product rather than a period at a time. Thus, products that is
Loss making initially, but profitable in the longer term, will be accepted.
(2) A lifecycle costing exercise enables management to focus marketing and
promotion
When required, at certain critical points of the life cycle.
Which of the above statements is/are true?
A (1) only
B (2) only
C Neither (1) nor (2)
D Both (1) and (2)

14. Unlike manufacturing companies, services are characterized by intangibility,

______________________, variability, _______________ and no transfer of ownership.

15. _______________________: The product gains a bigger market as demand builds

up.
Sales Revenues increase and the product begins to make a profit.
16. Life cycle costing is the profiling of cost over a product's production life. True or
false?
17. Life cycle costing is particularly useful for products with a short expected life
cycle.
True or false?
18. ____________________ is the money generated from sales minus the cost of the
materials
used in Making the items sold.
19. In the __________________, all costs in the factory (with the exception of materials
costs)
are fixed Costs
20. _________________ is determined by the rate at which 'money comes in at the
door' (that
is, sales Are made) and, in a JIT environment, this depends on _____________________
goods can be produced To satisfy customer orders
21. Total throughput should exceed total factory costs; otherwise the organisation
will make
a loss. This Means that the TA ratio should exceed ________.
22. Which of the following statements describes target costing?
A It calculates the expected cost of a product and then adds a margin to it to arrive
at the target selling price
B It allocates overhead costs to products by collecting the costs into pools and
sharing them out according to each products usage of the cost driving activity
C It identifies the market price of a product and then subtracts a desired profit
margin to arrive at the target cost

D It identifies different markets for a product and then sells that same product at
different prices in each market

23. The following information relates to product Z:

Selling price per unit $250
Sales for 2015 500 units
If the company requires a return of 15% in the coming year on its
investment of $250,000
in product Z, the target cost for each unit for the coming year is
A $145
B $155
C $165
D $175

24. The following costs have arisen in relation to the production of a product:
(i) Planning and concept design costs
(ii) Testing costs
(iii) Production costs
(iv) Distribution and customer service costs
In calculating the life cycle costs of a product, which of the above items
would be included?
A (iii) only
B (i), (ii) and (iii) only
C (i), (ii) and (iv) only
D All of the above

25. The following statements have been made in relation to activity-based costing:
(1) A cost driver is a factor which causes a change in the cost of an activity
(2) Traditional absorption costing tends to under-estimate overhead costs for high
volume products
Which of the above statements is/are true?
A 1 only
B 2 only
C Neither 1 nor 2
D Both 1 and 2

SECTION B
Only 1 Question out of 26 or 27 must be attempted. Those who
wont attempt theory Questions will face punishment of
Submitting an assignment of 100 pages.

26. Abkaber
Abkaber assembles three types of motorcycle at the same factory: the 50cc
Sunshine; the 250cc Roadster and the 1000cc Fireball. It sells the
motorcycles throughout the world. In response to market pressures Abkaber
has invested heavily in new manufacturing technology in recent years and,
as a result, has significantly reduced the size of its workforce. Historically,
the company has allocated all overhead costs using total direct labour hours,
but is now considering introducing Activity Based Costing (ABC). Abkabers
accountant has produced the following analysis.
Annual Output
materials cost

Annual direct labour hours

(units)
per unit)

Selling price

($ per unit)

Sunshine
400

2,000

200,000

4,000

Roadster
600

1,600

220,000

6,000

400

80,000

8,000

Fireball
900

Raw

($

The three cost drivers that generate overheads are:

Deliveries to retailers the number of deliveries of motorcycles to retail
showrooms
Set-ups the number of times the assembly line process is re-set to
accommodate a production run of a different type of motorcycle

Purchase orders the number of purchase orders.

The annual cost driver volumes relating to each activity and for each type of
motorcycle are as follows:

Number of deliveries to retailers

of Purchase orders

Number of set ups

Sunshine
400

100

35

Roadster
300

80

40

Fireball
100

70

25

Number

The annual overhead costs relating to these activities are as follows:

$
Deliveries to retailers
2,400,000
Set-up costs
6,000,000
Purchase orders
3,600,000
All direct labour is paid at $5 per hour. The company holds no inventories. At
a board meeting there was some concern over the introduction of activity
based costing. The finance director argued: I very much doubt whether
selling the Fireball is viable but I am not convinced that activity based
costing would tell us any more than the use of labour hours in assessing the
viability of each product.
The marketing director argued: I am in the process of negotiating a major
new contract with a motorcycle rental company for the Sunshine model. For
such a big order they will not pay our normal prices but we need to at least
cover our incremental costs. I am not convinced that activity based costing
would achieve this as it merely averages costs for our entire production.
The managing director argued: I believe that activity based costing would be
an improvement but it still has its problems. For instance if we carry out an

activity many times surely we get better at it and costs fall rather than
remain constant. Similarly, some costs are fixed and do not vary either with
labour hours or any other cost driver. The chairman argued: I cannot see
the problem. The overall profit for the company is the same no matter which
method of allocating overheads we use. It seems to make no difference to
me.
Required:
(a) Calculate the total profit on each of Abkabers three types of
product using each
of the following methods to attribute overheads:
(i) the existing method based upon labour hours (3 marks)
(ii) activity based costing. (5 marks)
(b) Explain the meaning of the term environmental management
accounting.
(2 marks)

27. Chloes Cakes

Chloes Cakes make three different types of cake, Birthday, Christmas and Wedding.
Each cake goes through three processes, mixing, baking and icing. Like many
businesses Chloes faces tough competition from a mature Market place.
The cake factory has 20 production lines which cover the three processes. The
processing capacity varies for each process and the manager has provided the
following details:
Birthday
Wedding
Mixing
1.5
Baking
1.6
Icing
1.5

Processing time per cake in hours

Christmas

0.4

0.8

1.0

1.5

0.8

1.0

The cake factory is open for 12 hours a day for six days per week. The factory closes
down for one week in the summer and one week at Christmas. Labour is paid at
7.50 per hour.

Raw materials cost 5.00 for the birthday cake, 10.00 for the Christmas cake and
20.00 for the wedding cake. Other factory costs (excluding Labour and raw
materials) are 200,000 per year. Selling prices are 20 for the birthday cake,
25.00 for the Christmas cake and 80.00 for the wedding cake.
Due to the perishable nature, Chloes carries very little inventory.
Required
(a) Identify the bottleneck process and explain why this process is
described as a bottleneck. (2marks)
(b) Calculate the throughput accounting ratio (TPAR) for each product
(assuming the bottleneck is fully utilized). (4 marks)
(c) Explain how Chloes could improve their TPAR (2 marks)
(d) Should Chloes discontinue making Christmas cakes? (2 marks)