Cima P2 Exam Question 31

Question No 31:

Explain how target costing could be of benefit to the company?

Target Costing is useful in a competitive market such as this where a company is not dominant in the market and is forced to accept the market price for its products or services.
Thus Target Costing focuses on the achievement of a unit cost which will earn the company the financial return that it requires.

The starting point for the operation of Target Costing is the unit selling price of the company's product or service. From this is deducted the required profit (to yield the company's required financial return) and the result is the target unit cost that is to be achieved. This target cost is then compared with the expected unit cost to see if the target cost is already being met or if the company needs to consider making changes which will result in a lowering of unit costs.

It may be that the effects of the learning and experience curves will reduce the present cost to the level of the target cost; or it may be that the company can achieve other cost savings provided they do not diminish the quality of the product or service as perceived by the customer.

If these cost savings cannot be made the company may have to lower its required return from the product or service or decide that it is not financially viable for it to sell this product or service in the market.

Thus Target Costing would benefit this company by forcing it to consider its internal processes and costs and to conduct these as efficiently as possible. If despite making theseas efficient as possible the required return from the product cannot be achieved, then the company should cease to make a product that is not viable and therefore would be able to focus its resources on alternative sources of income.

Movers and Shakers: Accountant George Oakes makes CIMA exams top ten list

George Oakes, 25, of Cambridge, has made an impressive feat and won a place in the top 10 worldwide in the last Chartered Institute of Management Accountants examinations case studies.

George is a driver of sales in the finance department of the headquarters of Volvo Construction Equipment in Duxford, and was second in the world in the review, with self-study. He scored 127 out of 150, besting more than 800 other students in the exam worldwide.

Marketing communications agency Mobas Chesterman Group named Ellen and Jessica Folkerts account managers to support the agency with a series of new contracts with customers including Tristel, Anson and Virbac. They will also work with established customers such as Elanco, Toshiba, NHS Blood and Transplant, Mercure, Novotel and Taylor Vinters.

Originally Sciences, which developed the diagnosis of patients with gastrointestinal diseases, has appointed CEO Paul Weinberger. He previously worked for Lumora, Enigma Diagnostics and Roche Diagnostics. It is the founder and CEO of Diasolve medical technology, and serves as a member of the Advisory Committee and Board BIVDA beautiful Diagnosis.

It recognized worldwide civil engineer Robert Mair, a member of the Royal Academy of Engineering and the Royal Society, and Civil and Environmental Engineering head of Cambridge University, and Master of Jesus College 2001-2011, he joined the House of Lords.

Earlier in his career, he spent nearly 30 years in the industry, the founder of Geotechnical Consulting Group in London. At Cambridge, he led a major research group has recently created the Center for intelligent infrastructure and construction, funded by government and industry, which is the pioneer of the innovative use of the latest technology Construction sensor. Mainly specialized in tunnels and underground construction, which is known for introducing new techniques and has acted as a consultant on various projects of high level engineering worldwide. In the United Kingdom, which has actively participated in the design and construction of the extension of the Jubilee line London Underground and Channel Tunnel Rail Link (now HS1).

He is a member of the Expert Group on engineering Crossrail project currently Europe's largest civil engineering. In 2012, he chaired the Royal Society and the Royal Academy of Engineering joint report on the extraction of shale gas. He is Chairman of the Science Advisory Council of the Ministry of Transport.

Stansted Airport exceeded 22 million passengers per year for the first time in more than six years and eight months after the approval of the 20 million per year.

Gravelle Budgens in Cambridge was selected in the Independent Achievers Academy new prices and convenience stores in the UK, in the categories availability and efficient telemetry.

There are over 50,000 of these stores in the country and the sector as a whole is worth £ 37.7bn, £ 5 million contribution to the UK economy. The winners will be announced in London at the end of next month.

Grant Thornton Matt McLoughlin appointed Chief Financial Officer of the company after 11 years with another national law firm, where he began as an apprentice before working in the ranks. Headquartered in Cambridge, and the beginning of his career in Manchester, Matt worked with UK and international buyers and sellers, providing due diligence in transactions across a variety of sectors and sizes, including acquisitions, divestitures and IPOs .

In his new role at Grant Thornton, Matt, who lives in Cambridge, it will focus on the local market and wider East of England, with its extensive experience and expertise to help companies with their ambitious growth plans through fusions and acquisitions.

Houlden Sweeney in Cambridge won the Best Property Consultancy in Cambridgeshire Awards UK property held in Grosvenor Square, London.

Meanwhile, Pure Resourcing Solutions won the People Development in the regional heat of the Chamber of Commerce of British Awards.

Cima P2 Exam Question 30

Question No 30:

Explain TWO disadvantages of "total cost plus" pricing?

Total Cost Plus pricing is a pricing technique based on determining the total cost of a product or service and adding a profit percentage to that total cost to determine the selling price.

In a competitive environment any cost inefficiencies or the use of too great a profit percentage will mean that the company is no longer able to compete and will start to lose its market share. As this happens and output volumes fall, then the total unit cost will rise due to the sharing of fixed costs among a smaller number of units. The total cost plus pricing formula will then result in increased selling prices thereby reducing still further the company's ability to compete.

Therefore one disadvantage of this approach to pricing is that it does not consider the nature of the market and as a result can lead to loss of sales and of course profits.
A second disadvantage is that the company is not motivated to save cost because if it does so this simply results in a lower selling price. Indeed if the market supports a total cost plus price then by increasing costs the size of the profit is increased!

Cima P2 Exam Question 29

Question N 29:

 Discuss the motivational factors in involving functional managers in the setting of functional budgets?

If functional managers are involved in setting their own functional budget then this should have a positive motivational effect on their attempts to achieve it. These is because they will own the budget and accept it as being a fair target, seeing it as a personal failure if they do not achieve the target that they set (and therefore believed was achievable).
The difficulty with involving managers in the budget setting process is that if their performance is to be measured by comparing the actual results with the budget they have set then they may be tempted to set an easy budget by building in budget slack. This will prevent them from performing as well as they might do if a harder, but fair and achievable, budget had been set by someone else.

Cima P2 Exam Question 28

Question No 28:

Explain how target costing could be of benefit to the company.
Target Costing is useful in a competitive market such as this where a company is not dominant in the market and is forced to accept the market price for its products or services.
Thus Target Costing focuses on the achievement of a unit cost which will earn the company the financial return that it requires.

The starting point for the operation of Target Costing is the unit selling price of the company's product or service. From this is deducted the required profit (to yield the company's required financial return) and the result is the target unit cost that is to be achieved. This target cost is then compared with the expected unit cost to see if the target cost is already being met or if the company needs to consider making changes which will result in a lowering of unit costs.

It may be that the effects of the learning and experience curves will reduce the present cost to the level of the target cost; or it may be that the company can achieve other cost savings provided they do not diminish the quality of the product or service as perceived by the customer.

If these cost savings cannot be made the company may have to lower its required return from the product or service or decide that it is not financially viable for it to sell this product or service in the market.
Thus Target Costing would benefit this company by forcing it to consider its internal processes and costs and to conduct these as efficiently as possible. If despite making theseas efficient as possible the required return from the product cannot be achieved, then the company should cease to make a product that is not viable and therefore would be able to focus its resources on alternative sources of income.

Cima P2 Exam Question 27

Question No 27:

If materials are in inventory, how are they costed?

•  In continual use - current replacement cost
• No other use (won't replace) - current resale value
• Scarce (can't replace) - opportunity cost