1. Briefly explain how each of the following cost management approaches is used to manage cost. (i) Business process re-engineering (ii) Target costing (5 marks) 2. The Mayfield Corporation manufactures filling cabinets in two operations: machining and finishing. It provides the following information. Machining Finishing Annual capacity 100,000 units 80,000 units Annual production 80,000 units 80,000 units Fixed operating costs (excluding direct materials) $640,000 $400,000 Fixed operating costs per unit produced ($640,000 80,000; $400,000 80,000) $8 per unit $5 per unit Each cabinet sells for $72 and has direct materials costs of $32 incurred at the start of the machining operation. Mayfield has no other variable costs. Mayfield can sell whatever it produces.

REQUIRED (i) Identify the bottleneck department of Mayfield Corporation, and briefly explain why it is a bottleneck. (2 marks

) (ii) An outside contractor offers to do the finishing operation for 12,000 units at $10 per unit, double the $5 per unit that it costs Mayfield to do the finishing in-house. Should Mayfield accept the subcontractors offer? Show your calculations. (4 marks)

(iii) Suggest one example each of Prevention cost and internal Failure cost in the production of the cabinets. (2 marks)

(iv) Suggest one example each of value adding and non-value adding activity in the production of the cabinets. (2 marks)