ACCA F5 Question Bank Tuition questions: 1: Specialist cost and management accounting techniques 5

6 Calculate the total material ordering costs for Product Y to the nearest $.

7 Calculate the machine running and general facility costs per unit for Product Z to the nearest
$0.01.

8 Calculate the budgeted full production cost per unit of product X using ABC, to the nearest
$0.01, on the basis that total overheads allocated to Product X under activity-based costing are
$492,824.

9 Which TWO of the following statements about ABC are correct?

 ABC is only useful for production overheads.
 ABC is most useful when overheads are related to volume.
 ABC is an absorption costing system.

Fir Co
ABC must be based on activities that are measurable in quantitative terms.

Target costing st I pyri

10 ntu ght
The selling price of Product X is set at $350 for each unit and sales for the coming year are
expected to be 500 units.
itio
n2
A return of 30% on the investment of $300,000 in Product X will be required in the coming year.
What is the target cost for each unit of Product X?

$
017
11 A company has calculated that the target cost for Product Z is $40 per unit. This is based on an
expected production and sales volume of 3,000 units. The company wishes to earn a profit of
25% on sales.
What market price is the target cost for Product Z based on (to two decimal places)?
 $10.00
 $30.00
 $50.00
 $53.33
6 Tuition questions: 1: Specialist cost and management accounting techniques ACCA F5 Question Bank

12 T Company uses target costing. The company wishes to close the target cost gap that exists for
one of its products.
Which of the following may be used to close the target cost gap?
 Replace skilled workers with less skilled workers for the more basic production tasks
 Replace existing material with higher quality material
 Raise the selling price of the product
 Use a higher grade of labour to complete work ahead of schedule

13 The following are all steps in the implementation of the target costing process for a product.
Rank them in the correct sequence.

Calculate the
target cost

Calculate the
target cost gap

Calculate the
current cost

profit
h t
Set the required

7
r i g 2 0 1
y
Set the selling
p ion
o
price

C uit
14
t
Which of the following statements describes target costing?

I n
rs t  It calculates the expected cost of a product and then adds a margin to it to arrive at the
target selling price.

Fi 


It allocates overhead costs to products by collecting the costs into pools and sharing
them out according to each product’s usage of the cost driving activity.
It identifies the market price of a product and then subtracts a desired profit margin to
arrive at the desired cost.
 It identifies different markets for a product and then sells that same product at different
prices in each market

15 Saris Co has set a budgeted labour cost based on the assumption of a learning rate of 80%. Its
Production Director has now found that the actual learning rate is 70%.
Which of the following statements is true?
 The cost gap will increase and the target cost will increase.
 The cost gap will decrease and the target cost will decrease.
 The cost gap will remain the same and the target cost will decrease.
 The cost gap will decrease and the target cost will remain the same.
ACCA F5 Question Bank Tuition questions: 1: Specialist cost and management accounting techniques 7

16 Which TWO of the following techniques are relevant to target costing?

 Value analysis
 Iso-contribution analysis
 Variance analysis
 Functional analysis

EDWARD CO
The following scenario relates to questions 17-21. Each question is worth 2 marks.
Edward Co assembles and sells many types of radio, and also repairs radios for customers. It is
considering extending its product range to include digital radios. These radios produce a better sound
quality than traditional radios and have a large number of potential additional features not possible
with the previous technologies.
A radio is produced by assembly workers assembling a variety of components. Production overheads
are currently absorbed into product costs on an assembly labour hour basis.
Edward Co is considering a target costing approach for its new digital radio product. A selling price of
$44 has been set in order to compete with a similar radio on the market that has comparable features
to Edward Co’s intended product. The board have agreed that the acceptable margin (after allowing
for all production costs) should be 20%.

Fir
Cost information for the new radio is as follows. Co
st I pyri
Component 1 (Circuit board) – these are bought in and cost $4.70 each.

ntu ght
Component 2 (Wiring) – in an ideal situation 25 cm of wiring is needed for each completed radio.
However, Edward Co estimates that 4% of the purchased wire is lost in the assembly process. Wire
costs $4.80 per metre to buy.
itio
Other materials – other materials cost $8.10 per radio.
n2
017
Assembly labour – these are skilled people who are difficult to recruit and retain. It takes 30 minutes
to assemble a radio and the assembly workers are paid $12.60 per hour. It is estimated that 10% of
hours paid to the assembly workers is for idle time.
Production overheads – variable production overhead for each radio is $20 per hour and fixed
overhead for each radio is $12 per hour.
17 Which TWO of the following would be benefits of introducing a target costing approach?
 Edward Co will have a greater internal focus on its product development.
 Cost control can begin at the design stage.
 Edward Co will be able to pass on cost increases to its customers.
 The radio will only include features that the customer regards as valuable.

18 Calculate the reduction in cost that would be achieved by eliminating the labour idle time and
the wire lost in the assembly process, to the nearest $0.01.

$
 8 Tuition questions: 1: Specialist cost and management accounting techniques ACCA F5 Question Bank

19 Assuming a change in supplier meant that the cost of Component 2 fell to $4.40 per metre,
there was no idle time with labour and all other costs remained the same, calculate the cost gap
to the nearest $0.01.

20 Which TWO of the following are measures that Edward Co might wish to use to reduce the cost
gap?
 Only including standard components in the radio
 Including additional features that the competitor’s radio does not have
 Analysing costs into cost pools
 Increasing the automation of the manufacturing process

21 Which of the following would be a problem with introducing a target cost approach to the
repair services provided by Edward Co?
 The outcomes of the repair services cannot be specified properly.
 The repair work carried out will vary according to the problems found.
 The time of the skilled labour used in the repair process has to be costed.
 The service is carried out when the customer requires it.

h t 7
Life cycle costing
r i g 2 0 1
22
y
p ion
Which THREE of the following costs are typically costs which occur at the Research and

o
Development stage of a product’s life cycle?

C uit
 Design costs


I
 n t Testing costs

rs t 
Promotional costs
Production facility investment costs

Fi 

Customer support costs
Inventory costs

23 A company is about to launch a new product. Total lifetime sales are expected to be 44,000
units. $3,250,000 has been incurred on design and development. Promotional costs over the
product’s life are expected to be $2,000,000. De-commissioning of the machine will cost
$250,000 at the end of the product’s life. Production of the product is expected to cost an
average of $150 per unit.
What is the life cycle cost per unit over the product’s life?

24 Which of the following is NOT a benefit of life cycle costing?

 Improved awareness of total costs
 Assists with long-term planning
 Emphasises the importance of early stage design and development costs
 Results in a market driven pricing strategy