Professional Documents
Culture Documents
Question 2:
A company manufactures MP3 players. It is planning to introduce a new model
and development will begin very soon. It expects the new product to have a life
cycle of 3 years and the following costs have been estimated.
Production costs
Variable cost per unit RM30 RM25 RM25
Fixed costs RM500,000 RM500,000 RM500,000
Marketing costs
Variable cost per unit RM5 RM4 RM3
Fixed costs RM300,000 RM200,000 RM200,000
1
ABMC3084 Information for control and decision making
Distribution costs
Variable cost per unit RM1 RM1 RM1
Fixed costs RM190,000 RM190,000 RM190,000
Required:
(a) Explain life cycle costing and state what distinguishes it from more
traditional management accounting techniques.
(b) Calculate the cost per unit looking at the whole lifecycle and comment on
the price to be charged. (Answer:RM51.05)
Question 3:
(a) Describe the steps to follow for a target costing process .
(b) Explain FOUR (4) benefits of adopting a target costing approach at an early
stage in the product development process.
Question 4:
Telmat is a company that manufactures mobile phones. The market is extremely
volatile and competitive and achieving adequate product profitability is
extremely important. Telmat is a mature company that has been producing
electronic equipment for many years and has all the costing systems in place that
one would expect in such a company. These include a comprehensive overheads
absorption system, annual budgets and monthly variance reports for performance
measurement.
The company is considering introducing:
(i) Target costing; and
(ii) Life cycle costing systems.
Required:
Discuss the advantages that this specific company is likely to gain from these
two systems.
2
ABMC3084 Information for control and decision making
Question 5:
Eda Sdn. Bhd. assembles and sells electronic toys. It is considering extending
its product range to include digital toys which offer a variety of features that are
not found in its current offering.
A digital toy is produced by assembly workers assembling a variety of
components. Production overheads are currently absorbed on an assembly labour
hour basis.
Eda Sdn. Bhd. is considering using a target costing approach for its new digital
toy.
A selling price of RM40 per unit of the digital toy has been set by the
management, in order to compete with a similar product that is in the market.
The management has also set the acceptable profit as 20% of the selling price.
Required:
(a) Compute the target cost. (Answer:RM32)
(b) Compute the estimated production cost per unit of a digital toy and identify
any target cost gap that might exist.
(Answer: Estimated production cost per unit= RM34.30)
(Answer: Target cost gap=RM2.30)