QUESTION: 1

A supermarket group has experienced operational problems during recent years, including a shortage of warehousing space due to increasing turnover and poor inventory management. The product portfolio has expanded considerably. Although this has led to increased sales volume, marketing and logistics costs have increased disproportionately. Non product-specific costs have also increased significantly.

Management is now considering using Direct Product Profitability (DPP).

Which of the following statements are valid in respect of the possible implementation of DPP within the supermarket group?

Select ALL that apply.

DPP should result in improved management of storage space.
DPP should result in improved supplier relationships.
DPP should result in improved pricing decisions.
DPP requires non product-specific costs to be apportioned rather than allocated.
DPP provides summary information on the profitability of each customer group.

Answer(s): A,B,C

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QUESTION: 2

The money cost of capital is 12%. The expected rate of inflation is 4%. What is the real cost of capital?

Give your answer to 2 decimal places.

7.69 %, 7.70 %

Answer(s): A

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QUESTION: 3

Division A and Division B are divisions of the same group. Division A transfers all of its output to Division B.
Which THREE of these alternative transfer pricing bases will prevent any cost inefficiencies in Division A being passed on to Division B?

Standard variable cost
Actual full cost
Actual prime cost
Market price
Actual variable cost
Standard variable cost plus a profit margin

Answer(s): A,D,F

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QUESTION: 4

Kaizen costing is being used by an organization to gradually reduce the unit cost of one of its products in order to achieve a 20% mark up on the product's cost.

The selling price of the product must be $72 per unit and this selling price has been maintained for two years.

Two years ago the product's cost was $3 per unit more than its selling price. Kaizen costing has achieved an 8% reduction from the previous period's unit cost in each of the past two years. The organization expects to continue to achieve the same rate of cost reduction next year.

Which of the following statements provides an accurate analysis of the extent to which Kaizen costing has been successful in achieving the required unit cost for the product?

Kaizen costing has successfully achieved the necessary cost reduction.
The current cost is $63.00 per unit and the required unit cost will be achieved next year.
Kaizen costing has not yet achieved the required unit cost of $57.60 because a greater rate of reduction in costs was needed.
The current cost is $63.48 per unit and the required unit cost will be achieved next year.

Answer(s): D

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