ACCA PM Syllabus B. Specialist Cost And Management Accounting Techniques - Identifying the Costs at different stages of the Life Cycle - Past Papers ^{1 / 2}

The company’s total fixed production overheads are budgeted to be $72 million each year and total machine hours are budgeted to be 96 million hours. The company absorbs overheads on a machine hour basis.

What is the budgeted life-cycle cost per unit for product P?

A. $24·40
B. $25·73
C. $27·40
D. $22·73

The following scenario relates to questions 26–30.

Helot Co develops and sells computer games. It is well known for launching innovative and interactive role-playing games and its new releases are always eagerly anticipated by the gaming community. Customers value the technical excellence of the games and the durability of the product and packaging.

Helot Co has previously used a traditional absorption costing system and full cost plus pricing to cost and price its products.

It has recently recruited a new finance director who believes the company would benefit from using target costing. He is keen to try this method on a new game concept called Spartan, which has been recently approved.

After discussion with the board, the finance director undertook some market research to find out customers’ opinions on the new game concept and to assess potential new games offered by competitors. The results were used to establish a target selling price of $45 for Spartan and an estimated total sales volume of 350,000 units. Helot Co wants to achieve a target profit margin of 35%.

The finance director has also begun collecting cost data for the new game and has projected the following:

26. Which of the following statements would the finance director have used to explain to Helot Co’s board what the benefits were of adopting a target costing approach so early in the game’s life-cycle?

(1) Costs will be split into material, system, and delivery and disposal categories for improved cost reduction analysis
(2) Customer requirements for quality, cost and timescales are more likely to be included in decisions on product development
(3) Its key concept is based on how to turn material into sales as quickly as possible in order to maximise net cash
(4) The company will focus on designing out costs prior to production, rather than cost control during live production

A    1, 2 and 4
B    2, 3 and 4
C    1 and 3
D    2 and 4 only

Which of the following statements regarding life-cycle costing are correct?

(1) It can be applied not only to products but also to an organisation’s customers
(2) It includes any opportunity costs associated with production
(3) The maturity phase is characterised by a rapid build-up in demand
(4) Often between 70% to 90% of costs are determined early in the product life cycle

A. (1), (2) and (4)
B. (3) and (4)
C. (1) and (4) only
D. (2) and (3)

The following statements have been made about life cycle costing:

(i) It focuses on the short-term by identifying costs at the beginning of a product’s life cycle
(ii) It identifies all costs which arise in relation to the product each year and then calculates the product’s profitability on an annual basis
(iii) It accumulates a product’s costs over its whole life time and works out the overall profitability of a product
(iv) It allocates costs to each stage of a product’s life cycle and writes them off at the end of each stage

Which of the above statements is/are correct?
A. (i) and (iii)
B. (iii) only
C. (i) and (iv)
D. (ii) only

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

The following costs arise in relation to production of a new product:

(i) Research and development costs
(ii) Design costs
(iii) Testing costs
(iv) Advertising costs
(v) Production costs

In calculating the lifetime costs of the product, which of the above items would be EXCLUDED?

A. (i), (ii), and (iii) only
B. (ii) and (iii) only
C. (iv) and (v) only
D. None of the above