SECTION B: Target Costing (10 marks)

Target costing is a strategic management process for reducing costs at the early stages

of product planning and design. Multi-disciplinary teams and group problem solving

are key mechanisms to take full advantage of target costing techniques. The role of the

management accountant within these teams is to ensure that the process includes a

focus on financial management and product profitability.

Required:

What part of the product life cycle is extremely important in reducing costs using target costing? Explain clearly.

CASE FOR SECTION B

The marketing department of Targa International identifies a new lightweight carry-on

bag for which customers are willing to pay RM100. Required features are spinner wheels,

durability, digital locks, and telescopic handles. The bag must also meet airline size limitsand customer demand for style and functionality. Targa's normal margin is 40 percent of the sales price. What is the carry-on bag's target cost?

SECTION D: Customer Relations and Profitability (10 marks)

The supply chain focuses on relations with both suppliers and customers of an organization. The previous section described relations with suppliers, but relations with

customers also provide opportunities to reduce cost and add value to customers. In order to add value, organizations must know their customers, and be able to identify the most profitable ones.

Required:

What types of customer are most expensive?How can an organization work with customers to make them more profitable?

CASE FOR SECTION D:

James Wilson, a contractor, purchases 1,000 windows annually from Clear Windows, a

window manufacturer, for RM120,000. The product cost of RM80/window includes the cost of designing and manufacturing the windows, but does not include transportation or

customer service. The cost to Clear Windows of delivering the 1,000 windows to James

Wilson is RM5,000. Employees at Clear Windows spend 80 hours a year taking orders,

answering questions, and offering other assistance for James Wilson. The cost of using

employee time is RM20 per hour. What is the annual net benefit to Clear Windows of having James Wilson as a customer?