Q.1 What is the primary aim of Target Costing?
To determine historical costs
To reduce production cost after launch
To achieve desired profit margin within market price
To calculate life cycle cost
Explanation - Target costing starts with the market price and desired profit margin, then determines the allowable cost to stay competitive.
Correct answer is: To achieve desired profit margin within market price
Q.2 Which of the following is the formula for Target Cost?
Target Cost = Selling Price + Profit
Target Cost = Selling Price - Desired Profit
Target Cost = Cost Price + Profit
Target Cost = Market Value - Expense
Explanation - Target Cost is derived by subtracting the desired profit from the estimated selling price.
Correct answer is: Target Cost = Selling Price - Desired Profit
Q.3 Life Cycle Costing focuses on:
Only manufacturing cost
Cost of disposal
Total cost from design to disposal
Only administrative expenses
Explanation - Life cycle costing considers all costs throughout the product's life, from design to disposal.
Correct answer is: Total cost from design to disposal
Q.4 Which stage is most critical in Target Costing?
Design stage
Manufacturing stage
Sales stage
Disposal stage
Explanation - Most cost is committed at the design stage, making it crucial in achieving target costs.
Correct answer is: Design stage
Q.5 Target costing is usually applied in which type of industries?
Commodity-based
Service-based
Competitive and consumer-driven
Monopoly
Explanation - Target costing is common in competitive markets where customer price sensitivity is high.
Correct answer is: Competitive and consumer-driven
Q.6 Which of the following is NOT a feature of Target Costing?
Market-driven pricing
Focus on cost reduction
Post-production cost control
Cross-functional team involvement
Explanation - Target costing emphasizes pre-production planning, not post-production adjustments.
Correct answer is: Post-production cost control
Q.7 Life cycle costing helps managers by:
Ignoring R&D costs
Considering only variable costs
Evaluating long-term profitability
Focusing only on short-term profits
Explanation - Life cycle costing ensures all costs are considered for long-term decision-making.
Correct answer is: Evaluating long-term profitability
Q.8 In Life Cycle Costing, which cost is included?
R&D cost
Marketing cost
Disposal cost
All of the above
Explanation - Life cycle costing covers all costs from R&D to disposal.
Correct answer is: All of the above
Q.9 The Japanese automobile industry is famous for using:
Absorption costing
Target costing
Process costing
Variable costing
Explanation - Japanese car manufacturers pioneered target costing to stay competitive.
Correct answer is: Target costing
Q.10 Which of the following best describes 'cost gap' in Target Costing?
Difference between cost incurred and budgeted cost
Difference between estimated cost and target cost
Difference between market price and cost
Difference between profit margin and selling price
Explanation - Cost gap is the excess of estimated cost over the allowable target cost.
Correct answer is: Difference between estimated cost and target cost
Q.11 Life Cycle Costing encourages managers to:
Ignore fixed costs
Focus only on manufacturing
Reduce costs at all stages of product life
Stop tracking after sales
Explanation - Life cycle costing tracks and controls costs from design to disposal.
Correct answer is: Reduce costs at all stages of product life
Q.12 Target costing is also known as:
Cost-plus pricing
Reverse costing
Absorption costing
Marginal costing
Explanation - Target costing is sometimes referred to as reverse costing since cost is worked backward from price.
Correct answer is: Reverse costing
Q.13 Which of the following is a limitation of Target Costing?
Focus on customer needs
Encourages teamwork
Requires market-oriented data
Reduces wastage
Explanation - Target costing heavily depends on accurate market research, which can be challenging.
Correct answer is: Requires market-oriented data
Q.14 In life cycle costing, 'cradle to grave' approach means:
From production to distribution
From purchase to resale
From product design to disposal
From R&D to marketing
Explanation - 'Cradle to grave' means considering the entire life span of a product.
Correct answer is: From product design to disposal
Q.15 Target costing is particularly important when:
Price is determined by producer
Competition is low
Market is price sensitive
Product is monopoly
Explanation - Target costing ensures products meet customer expectations in price-sensitive markets.
Correct answer is: Market is price sensitive
Q.16 Which cost is locked at the design stage of a product?
Around 20%
Around 40%
Around 80-90%
Only 10%
Explanation - Studies show that about 80-90% of costs are committed at the design stage.
Correct answer is: Around 80-90%
Q.17 Target costing integrates with which management technique?
Kaizen costing
Standard costing
Absorption costing
Batch costing
Explanation - Target costing sets initial targets, while Kaizen costing supports continuous cost reduction.
Correct answer is: Kaizen costing
Q.18 Which of the following is NOT considered in Life Cycle Costing?
Design costs
Production costs
Post-sale service costs
Only direct material cost
Explanation - Life cycle costing goes beyond material cost, covering all relevant costs.
Correct answer is: Only direct material cost
Q.19 The equation: Target Cost = Market Price - Profit is based on:
Market-based pricing
Cost-plus pricing
Absorption costing
Opportunity costing
Explanation - Target costing is driven by market price rather than production cost.
Correct answer is: Market-based pricing
Q.20 Which of the following is the main focus of Life Cycle Costing?
Short-term profitability
Maximizing return over product's life
Minimizing sales expense
Ignoring R&D
Explanation - Life cycle costing ensures total cost and revenue analysis across the product's life.
Correct answer is: Maximizing return over product's life
Q.21 Target costing usually involves:
Only cost accountants
Only marketing team
Cross-functional teams
Only production managers
Explanation - Target costing requires input from multiple departments including design, marketing, and finance.
Correct answer is: Cross-functional teams
Q.22 Life Cycle Costing provides:
A short-term perspective
Long-term profitability view
Only manufacturing cost view
Only sales performance view
Explanation - It integrates all costs and revenues to assess product profitability over its life.
Correct answer is: Long-term profitability view
Q.23 Which statement about Target Costing is correct?
It starts with cost estimation and adds profit
It is product-cost focused
It begins with selling price and desired profit
It ignores customer demand
Explanation - Target costing works backward from price and profit to allowable cost.
Correct answer is: It begins with selling price and desired profit
Q.24 Which one of the following is an advantage of Life Cycle Costing?
Ignores R&D
Provides total cost picture
Focuses only on manufacturing
Avoids customer perspective
Explanation - Life cycle costing gives a holistic view of costs from design to disposal.
Correct answer is: Provides total cost picture
Q.25 Which of the following costs is unique to Life Cycle Costing?
Research and development
Direct material
Factory overhead
Direct labor
Explanation - R&D is generally excluded in traditional costing but included in life cycle costing.
Correct answer is: Research and development