Stcm

S. P. JAIN INSTITUTE OF MANAGEMENT & RESEARCH

EMP Batch 19 Customisation Phase

Subject: Strategic Cost Management Marks: 50

Time: 90 min Date: 29/07/2010

Instructions:

It is an open book exam.

PART A: each carries 2 marks 20 marks

PART B : each carries 10 marks 20 marks

PART C : each carries 5 marks 10 marks

PART A (20 Marks)

I. State true or false. Give brief explanation for your choice. (2 marks each)

1. Relevant costs for pricing decisions include manufacturing costs, but not costs from other value-chain functions.

2. When prices are set in a competitive marketplace, product costs are the most important influence on pricing decisions.

3. Relevant costs of a bidding decision should exclude revenues lost on lower-priced sales to existing customers.

4. Companies that operate in very competitive environments use a market-based approach when making their long-run pricing decisions.

5. Target pricing is a form of cost-based pricing.

6. Value engineering can be used to make cost improvements to meet a target cost.

7. Customers are sometimes willing to pay for non value-added costs.

8. Kaizen costing focuses on improving productivity and eliminating waste through continuous improvements.

9. Indirect labor and distribution costs would most likely be in the same activity-cost pool.

PART B (20 Marks)

1. Steven Corporation manufactures fishing poles that have a price of $21.00. It has costs of $16.32. A competitor is introducing a new fishing pole that will sell for $18.00. Management believes it must lower the price to $18.00 to compete in the highly cost-conscious fishing pole market. Marketing believes that the new price will maintain the current sales level. Steven Corporation's sales are currently 200,000 poles per year. (10 marks)

Required:

a. What