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Supplementary objective test questions

CHAPTER 3 – COSTING TECHNIQUES

3.1 The target cost for a product has been calculated to be $38.00, which is 5%
less than the actual cost currently achievable. The business is considering
providing some internal training to improve efficiency of labour and hence
reduce the cost gap. The current material cost is $10 per unit and this will not
change as efficiency changes. Labour rates are $8 per hour.

How much of an efficiency improvement (measured by the % reduction in
labour time per unit will be necessary to remove the cost gap completely).
Accurate to 2 decimal places.

A 5.00%

B 6.67%

C 7.10%

D 7.28%

3.2 Millie Ltd produces unique oak furniture for wealthy home owners. Millie Ltd.’s
management team has recently performed a value chain analysis and have only
identified the following activities which they believe are adding value to their
customers:

(1) They have an expert team of buyers who use the internet to source the
best raw materials to go into the furniture they produce.

(2) In the last 2 years they have invested heavily in the environmental controls
in their stores and production areas to ensure that temperature and
humidity do not affect the quality of the finished product.

(3) All of the production equipment used is very basic to ensure a traditional
feel to the end product. Skilled carpenters review the finished items to
ensure they are of suitable quality.

(4) Their delivery trucks are customised to ensure the furniture arrives in the
best possible condition and each delivery is made by a driver plus one of
the carpenters who can then give advice to the customer about product
care.

The management team does not believe any other activity is adding particular
value in any way.

Which of the following statements about the team’s value chain analysis
are valid? Select all that apply.

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