Under the absorption costing system, which simply allocates our entire amount of production overheads based on machine hours, we have found that out of our 4 products, 2 are profitable, 1 breaks even and 1 is making a loss.
Model D the most recent addition to the range is making a large loss after the price of a major component rose dramatically. Model A is only just breaking now too as costs have risen. The only two products making profit
are Models B and C. These two require the least about of machine hours so this makes sense.
However, the management have a few reservations. They cannot understand how B is so profitable. It requires several more stages of production than the other models and a whole day longer to be customised by an expert.
Select the correct answer from the list below that can help to explain this situation.
Which of the following statements are correct with regard to responsibility centres?
Select ALL that apply.
A company's competitor has just launched a rival product at a selling price of $38 per unit. Until now the company's selling price of $41.60 per unit has achieved a 30% mark-up on the product's unit cost. The company proposes to use a target costing approach to pricing to remain competitive.
Management has decided to match the competitor's selling price and has set a target cost to achieve a 20% return on the target price.
What is the cost gap?
ZZZ is a divisionalised company that uses the balanced scorecard approach to monitor divisional performance. Each measure on the scorecard is classified as green (if they are better than expected), amber (if expectations have been met) or red (if they are poorer than expected).
The Southern Division's scorecard shows that 90% of the measures are amber, 3% are green and 7% are red.
All of the red classifications are listed under the Learning and Growth perspective and have arisen largely because the division has lost a lot of staff to a major competitor who offered a better rate of pay.
Which THREE of the following statements are correct?
For a pharmaceutical manufacturer, in which perspective of the Balanced Scorecard should the performance measure 'number of patents granted during the year' be included?
