Which of the following techniques is NOT relevant to target costing？

A. Value analysis
B. Variance analysis
C. Functional analysis
D. Activity analysis

Cardale Industrial Metal Co (CIM Co) is a large supplier of industrial metals. The company is split into two divisions: Division F and Division N. Each division operates separately as an investment centre, with each one having full control over its non-current assets. In addition, both divisions are responsible for their own current assets, controlling their own levels of inventory and cash and having full responsibility for the credit terms granted to customers and the collection of receivables balances. Similarly, each division has full responsibility for its current liabilities and deals directly with its own suppliers.<br>Each divisional manager is paid a salary of $120,000 per annum plus an annual performance-related bonus, based on the return on investment (ROI) achieved by their division for the year. Each divisional manager is expected to achieve a minimum ROI for their division of 10% per annum. If a manager only meets the 10% target, they are not awarded a bonus. However, for each whole percentage point above 10% which the division achieves for the year, a bonus equivalent to 2% of annual salary is paid, subject to a maximum bonus equivalent to 30% of annual salary.<br>The following figures relate to the year ended 31 August 2015:<br>During the year ending 31 August 2015, Division N invested $6·8m in new equipment including a technologically advanced cutting machine, which is expected to increase productivity by 8% per annum. Division F has made no investment during the year, although its computer system is badly in need of updating. Division F’s manager has said that he has already had to delay payments to suppliers (i.e. accounts payables) because of limited cash and the computer system ‘will just have to wait’, although the cash balance at Division F is still better than that of Division N.<br>Required:<br>(a) For each division, for the year ended 31 August 2015, calculate the appropriate closing return on investment (ROI) on which the payment of management bonuses will be based. Briefly justify the figures used in your calculations. Note: There are 3 marks available for calculations and 2 marks available for discussion. (5 marks)<br>(b) Based on your calculations in part (a), calculate each manager’s bonus for the year ended 31 August 2015. (3 marks)<br>(c) Discuss whether ROI is providing a fair basis for calculating the managers’ bonuses and the problems arising from its use at CIM Co for the year ended 31 August 2015. (7 marks)

The Organic Bread Company (OBC) makes a range of breads for sale direct to the public. The production process begins with workers weighing out ingredients on electronic scales and then placing them in a machine for mixing. A worker then manually removes the mix from the machine and shapes it into loaves by hand, after which the bread is then placed into the oven for baking.<br>All baked loaves are then inspected by OBC’s quality inspector before they are packaged up and made ready for sale. Any loaves which fail the inspection are donated to a local food bank.<br>The standard cost card for OBC’s ‘Mixed Bloomer’, one of its most popular loaves, is as follows:<br>Budgeted production of Mixed Bloomers was 1,000 units for the quarter, although actual production was only 950 units. The total actual quantities used and their actual costs were:<br>Required:<br>(a) Calculate the total material mix variance and the total material yield variance for OBC for the last quarter. (7 marks)<br>(b) Using the information in the question, suggest THREE possible reasons why an ADVERSE MATERIAL YIELD variance could arise at OBC. (3 marks)

Section A暂缺<br>Section B – ALL FIVE questions are compulsory and MUST be attempted<br>The Chemical Free Clean Co (C Co) provides a range of environmentally-friendly cleaning services to business customers, often providing a specific service to meet a client’s needs. Its customers range from large offices and factories to specialist care wards at hospitals, where specialist cleaning equipment must be used and regulations adhered to. C Co offers both regular cleaning contracts and contracts for one-off jobs. For example, its latest client was a chain of restaurants which employed them to provide an extensive clean of all their business premises after an outbreak of food poisoning.<br>The cleaning market is very competitive, although there are only a small number of companies providing a chemical free service. C Co has always used cost-plus pricing to determine the prices which it charges to its customers but recently, the cost of the cleaning products C Co uses has increased. This has meant that C Co has had to increase its prices, resulting in the loss of several regular customers to competing service providers.<br>The finance director at C Co has heard about target costing and is considering whether it could be useful at C Co.<br>Required:<br>(a) Briefly describe the main steps involved in deriving a target cost. (3 marks)<br>(b) Explain any difficulties which may be encountered and any benefits which may arise when implementing target costing at C Co. (7 marks)

Bus Co is a large bus operator, operating long-distance bus services across the country. There are two other national operators in the country. Bus Co’s mission is to ‘be the market leader in long-distance transport providing a greener, cleaner service for passengers nationwide’. Last month, an independent survey of 40,000 passengers was carried out, the results of which are shown in the table below:<br>Table: Bus passenger satisfaction % by national operator<br>* denotes that the percentage has not yet been calculated.<br>The ‘overall satisfaction’ percentages, which have not yet been inserted into the table, are calculated using a weighted average which reflects the importance customers place on each of the other three criteria above. The weightings used are as follows:<br>The managing director (MD) of Bus Co has said: ‘Independent research has shown that our customers are the most satisfied of any national bus operator. We are now leading the way on what matters most to customers – value for money and punctuality.’<br>Required:<br>(a) Calculate the ‘overall satisfaction’ percentage for each operator. (2 marks)<br>(b) Taking into account all the data in the table and your calculations from part (a), discuss whether the managing director’s statement is true. (4 marks)<br>(c) When measuring performance using a ‘value for money’ approach, the criteria of economy, efficiency and effectiveness can be used.<br>Required:<br>Briefly define ‘efficiency’ and ‘effectiveness’ and suggest one performance measure for EACH, which would help Bus Co assess the efficiency and effectiveness of the service it provides. (4 marks)

The Safe Soap Co makes environmentally-friendly soap using three basic ingredients. The standard cost card for one batch of soap for the month of September was as follows:<br>The budget for production and sales in September was 120,000 batches. Actual production and sales were 136,000 batches. The actual ingredients used were as follows:<br>Required:<br>(a) Calculate the total material mix variance and the total material yield variance for September. (8 marks)<br>(b) In October the materials mix and yield variances were as follows:<br>Mix: $6,000 adverse<br>Yield: $10,000 favourable<br>The production manager is pleased with the results overall, stating:<br>‘At the beginning of September I made some changes to the mix of ingredients used for the soaps. As I expected, the mix variance is adverse in both months because we haven’t yet updated our standard cost card but, in both months, the favourable yield variance more than makes up for this. Overall, I think we can be satisfied that the changes made to the product mix are producing good results and now we are able to produce more batches and meet the growing demand for our product.’<br>The sales manager, however, holds a different view and says:<br>‘I’m not happy with this change in the ingredients mix. I’ve had to explain to the board why the sales volume variance for October was $22,000 adverse. I’ve tried to explain that the quality of the soap has declined slightly and some of my customers have realised this and simply aren’t happy but no-one seems to be listening. Some customers are even demanding that the price of the soap be reduced and threatening to go elsewhere if the problem isn’t sorted out.’<br>Required:<br>(i) Briefly explain what the adverse materials mix and favourable materials yield variances indicate about production at Safe Soap Co in October.<br>Note: You are NOT required to discuss revision of standards or operational and planning variances. (4 marks)<br>(ii) Discuss whether the sales manager could be justified in claiming that the change in the materials mix has caused an adverse sales volume variance in October. (3 marks)

Jamair was founded in September 2007 and is one of a growing number of low-cost airlines in the country of Shania. Jamair’s strategy is to operate as a low-cost, high efficiency airline, and it does this by:<br>– Operating mostly in secondary cities to reduce landing costs.<br>– Using only one type of aircraft in order to reduce maintenance and operational costs. These planes are leased rather than bought outright.<br>– Having only one category of seat class.<br>– Having no pre-allocated seats or in-flight entertainment.<br>– Focusing on e-commerce with customers both booking tickets and checking in for flights online.<br>The airline was given an ‘on time arrival’ ranking of seventh best by the country’s aviation authority, who rank all 50 of the country’s airlines based on the number of flights which arrive on time at their destinations. 48 Jamair flights were cancelled in 2013 compared to 35 in 2012. This increase was due to an increase in the staff absentee rate at Jamair from 3 days per staff member per year to 4·5 days.<br>The average ‘ground turnaround time’ for airlines in Shania is 50 minutes, meaning that, on average, planes are on the ground for cleaning, refuelling, etc for 50 minutes before departing again. Customer satisfaction surveys have shown that 85% of customers are happy with the standard of cleanliness on Jamair’s planes.<br>The number of passengers carried by the airline has grown from 300,000 passengers on a total of 3,428 flights in 2007 to 920,000 passengers on 7,650 flights in 2013. The overall growth of the airline has been helped by the limited route licensing policy of the Shanian government, which has given Jamair almost monopoly status on some of its routes. However, the government is now set to change this policy with almost immediate effect, and it has become more important than ever to monitor performance effectively.<br>Required:<br>(a) Describe each of the four perspectives of the balanced scorecard. (6 marks)<br>(b) For each perspective of the balanced scorecard, identify one goal together with a corresponding performance measure which could be used by Jamair to measure the company’s performance. The goals and measures should be specifically relevant to Jamair. For each pair of goals and measures, explain why you have chosen them. (9 marks)

The Hi Life Co (HL Co) makes sofas. It has recently received a request from a customer to provide a one-off order of sofas, in excess of normal budgeted production. The order would need to be completed within two weeks. The following cost estimate has already been prepared:<br>Notes<br>1 The fabric is regularly used by HL Co. There are currently 300 m2 in inventory, which cost $17 per m2. The current purchase price of the fabric is $17·50 per m2.<br>2 This type of wood is regularly used by HL Co and usually costs $8·20 per m2. However, the company’s current supplier’s earliest delivery time for the wood is in three weeks’ time. An alternative supplier could deliver immediately but they would charge $8·50 per m2. HL Co already has 500 m2 in inventory but 480 m2 of this is needed to complete other existing orders in the next two weeks. The remaining 20 m2 is not going to be needed until four weeks’ time.<br>3 The skilled labour force is employed under permanent contracts of employment under which they must be paid for 40 hours’ per week’s labour, even if their time is idle due to absence of orders. Their rate of pay is $16 per hour, although any overtime is paid at time and a half. In the next two weeks, there is spare capacity of 150 labour hours.<br>4 There is no spare capacity for semi-skilled workers. They are currently paid $12 per hour or time and a half for overtime. However, a local agency can provide additional semi-skilled workers for $14 per hour.<br>5 The $3 absorption rate is HL Co’s standard factory overhead absorption rate; $1·50 per hour reflects the cost of the factory supervisor’s salary and the other $1·50 per hour reflects general factory costs. The supervisor is paid an annual salary and is also paid $15 per hour for any overtime he works. He will need to work 20 hours’ overtime if this order is accepted.<br>6 This is an apportionment of the general administration overheads incurred by HL Co. Required: Prepare, on a relevant cost basis, the lowest cost estimate which could be used as the basis for the quotation. Explain briefly your reasons for including or excluding each of the costs in your estimate.<br>Required:<br>Prepare, on a relevant cost basis, the lowest cost estimate which could be used as the basis for the quotation. Explain briefly your reasons for including or excluding each of the costs in your estimate.

Glam Co is a hairdressing salon which provides both ‘cuts’ and ‘treatments’ to clients. All cuts and treatments at the salon are carried out by one of the salon’s three senior stylists. The salon also has two salon assistants and two junior stylists.<br>Every customer attending the salon is first seen by a salon assistant, who washes their hair; next, by a senior stylist, who cuts or treats the hair depending on which service the customer wants; then finally, a junior stylist who dries their hair. The average length of time spent with each member of staff is as follows:<br>The salon is open for eight hours each day for six days per week. It is only closed for two weeks each year. Staff salaries are $40,000 each year for senior stylists, $28,000 each year for junior stylists and $12,000 each year for the assistants. The cost of cleaning products applied when washing the hair is $0·60 per client. The cost of all additional products applied during a ‘treatment’ is $7·40 per client. Other salon costs (excluding labour and raw materials) amount to $106,400 each year.<br>Glam Co charges $60 for each cut and $110 for each treatment.<br>The senior stylists’ time has been correctly identified as the bottleneck activity.<br>Required:<br>(a) Briefly explain why the senior stylists’ time has been described as the ‘bottleneck activity’, supporting your answer with calculations. (4 marks)<br>(b) Calculate the throughput accounting ratio (TPAR) for ‘cuts’ and the TPAR for ‘treatments’ assuming the bottleneck activity is fully utilised. (6 marks)

Chair Co has developed a new type of luxury car seat. The estimated labour time for the first unit is 12 hours but a learning curve of 75% is expected to apply for the first eight units produced. The cost of labour is $15 per hour. The cost of materials and other variable overheads is expected to total $230 per unit.<br>Chair Co plans on pricing the seat by adding a 50% mark-up to the total variable cost per seat, with the labour cost being based on the incremental time taken to produce the 8th unit.<br>Required:<br>(a) Calculate the price which Chair Co expects to charge for the new seat. Note: The learning index for a 75% learning curve is –0·415. (5 marks)<br>(b) The first phase of production has now been completed for the new car seat. The first unit actually took 12·5 hours to make and the total time for the first eight units was 34·3 hours, at which point the learning effect came to an end. Chair Co are planning on adjusting the price to reflect the actual time it took to complete the 8th unit.<br>Required:<br>(i) Calculate the actual rate of learning and state whether this means that the labour force actually learnt more quickly or less quickly than expected. (3 marks)<br>(ii) Briefly explain whether the adjusted price charged by Chair Co will be higher or lower than the price you calculated in part (a) above. You are NOT required to calculate the adjusted price. (2 marks)