CPT Cost Analysis & Value Engineering 3 — Questions and Answers
Question 1: Activity-based costing (ABC) differs from traditional packaging cost accounting primarily because it:
- Allocates overhead costs based solely on direct labor hours
- Assigns costs to products based on the specific activities and resources each product consumes (Correct answer)
- Ignores indirect costs in the cost structure
- Uses only material costs to determine total package cost
Correct answer: Assigns costs to products based on the specific activities and resources each product consumes
ABC traces overhead to cost objects by identifying activities and their drivers, giving more accurate per-SKU costs than blanket overhead rates.
Question 2: A company compares two packaging configurations: Option A has a lower unit cost but higher distribution damage rate; Option B has a higher unit cost but near-zero damage. Which cost approach best captures the true comparison?
- Standard costing
- Total cost of ownership (TCO) (Correct answer)
- Variable costing
- Absorption costing
Correct answer: Total cost of ownership (TCO)
TCO accounts for acquisition, use, damage, returns, and end-of-life costs, making it the correct framework when downstream costs differ significantly between options.
Question 3: When performing a packaging lifecycle cost analysis, which of the following is typically a 'hidden' cost that traditional purchasing overlooks?
- Raw material price
- Tooling charge
- Reverse logistics and disposal fees (Correct answer)
- Quoted unit price
Correct answer: Reverse logistics and disposal fees
Disposal and reverse logistics costs occur after purchase and often fall to a different budget, making them invisible in standard procurement comparisons.
Question 4: A cost model for a flexible pouch includes raw film ($0.12), converting ($0.05), filling ($0.03), and warehousing ($0.01). The largest cost reduction lever identified by Pareto analysis is:
- Converting
- Filling
- Warehousing
- Raw film (Correct answer)
Correct answer: Raw film
Pareto analysis focuses effort on the highest-cost element; at $0.12, raw film represents the largest share and therefore the greatest cost reduction opportunity.
Question 5: Fixed costs in a packaging operation are best described as costs that:
- Increase proportionally with every unit produced
- Remain constant regardless of production volume within a relevant range (Correct answer)
- Vary with the number of suppliers used
- Equal the sum of all direct material expenses
Correct answer: Remain constant regardless of production volume within a relevant range
Fixed costs (e.g., depreciation, lease payments) do not change with output volume within a defined relevant range, unlike variable costs.
Question 6: A packaging line runs at 70% capacity. Adding a new SKU would increase volume enough to reach 90% capacity. The incremental cost analysis should focus on:
- Full absorption cost per unit including all fixed overhead
- Marginal (variable) cost of the additional volume, since fixed costs are already covered (Correct answer)
- The list price of all machinery on the line
- Sunk costs associated with original line installation
Correct answer: Marginal (variable) cost of the additional volume, since fixed costs are already covered
When fixed costs are already covered, the relevant cost for the incremental volume decision is only the additional variable costs incurred.
Question 7: A teardown analysis in packaging VE involves:
- Destroying competitors' packages to render them unsaleable
- Physically disassembling and costing each component of a reference package to identify cost reduction benchmarks (Correct answer)
- Tearing down internal specification documents for revision
- Removing packaging layers to test product protection at minimum material
Correct answer: Physically disassembling and costing each component of a reference package to identify cost reduction benchmarks
Teardown analysis (reverse costing) dissects a benchmark package component by component to estimate should-cost and surface design alternatives.
CPT Cost Analysis & Value Engineering 3
Activity-based costing (ABC) differs from traditional packaging cost accounting primarily because it: