Deck 5: Activity-Based Management

Question 1

Activity-Based Costing evaluates the costs and values of process activities to identify opportunities for improved efficiency.

Answer 1

False

Question 2

By itself, Activity-Based Costing does not result in the process improvements that might be necessary to achieve desired efficiencies.

Answer 2

True

Question 3

Target cost is the highest cost of a good or service that meets both customer needs and company profit goals.

Answer 3

True

Question 4

Target cost is the selling price assigned to a product or service that allows the company to achieve a desired gross profit level.

Question 5

A currently feasible cost is the cost of all current operations necessary to produce and deliver a product

Question 6

Value-added activities enhance the value of production and services in the eyes of management while meeting the goals of the organization.

Question 7

Producing units to build up inventory for future sales is a value-added activity.

Question 8

Waiting time for processing is a source of non-value-added activity.

Question 9

Processing payments from customers at Bell Atlantic is a value-added activity.

Question 10

Transporting workers to work sites is an example of a value-added activity.

Question 11

In general, approval processes tend to be non-value added.

Question 12

Simply eliminating non-value-added activities without redesigning processes is unlikely to result in long-term benefits.

Question 13

Setting-up machines to run a new production order for a customer is a value-added activity.

Question 14

The first question to ask in deciding whether an activity adds customer value is how the organization should measure its value-added activities.

Question 15

Generally, all of a company's customers will have the same responses when identify activities they consider value-added.

Question 16

The best approach to identifying a company's value-added activities is to use cross-functional teams.

Question 17

If an external customer would encourage an organization to do more of an activity, the activity would be classified as a value-added activity.

Question 18

Rewriting faulty software code is an example of a value-added activity.

Question 19

A test for determining whether an activity is value-added is to ask whether profits will increase because of that activity.

Question 20

A bar-coding system creates a unique bar code for each order and allows a company to mark and track orders electronically.

Question 21

Bar-coding systems tend to increase non-value added recording time.

Question 22

With effective application of Activity Based Management, it is possible to eliminate all non-value-added activities.

Question 23

Unused capacity is the difference between resources supplied in an organization and resources used.

Question 24

Conventional management reports do not typically distinguish between resources used and resources supplied.

Question 25

Under Activity-Based-Costing, unit-level costing measures the impact of the use of resources by various products.

Question 26

Under Activity-Based-Costing, unit-level costing measures the impact of various products on spending for resources.

Question 27

If a company operates at less than full capacity, facility-level costs will have unused resources.

Question 28

Financial accounting reports generally focus on resources used by various parts of the organization.

Question 29

Activity-Based-Management techniques are simple to implement.

Question 30

Companies with multiple complex products are more likely to benefit from Activity-Based-Management than companies producing a single product.

Question 31

A pilot program is an activity-based-management program employed to train pilots at major airlines.

Question 32

A pilot project is a project of limited-scope intended to be a small-scale of a system-wide project.

Question 33

Not all organizations may need improved product or service costs, but most organizations could benefit from process improvements.

Question 34

Top managers in an organization should be responsible for analyzing the data gathered in an activity-based-management study.

Question 35

Measuring the costs of current process activities involves five steps. Which of the following is the first step?

A) Identify cost driver bases and measure activity cost driver rates
B) Assign activity costs to products, jobs or services by multiplying the use of cost driver base by the cost driver rate
C) Identify and measure the different levels of resource spending
D) Measure the costs of individual activities

Question 36

Measuring the costs of current process activities involves five steps. Which of the following is the last step?

A) Identify cost driver bases and measure activity cost driver rates
B) Assign activity costs to products, jobs or services by multiplying the use of cost driver base by the cost driver rate
C) Identify and measure the different levels of resource spending
D) Analyze the profitability of products using ABC unit-level and full-costing

Question 37

Which of the following is not a step in Activity-based management?

A) Score each activity as high or low value-added as perceived by the customer
B) Calculate a cost-driver rate for each activity
C) Identify the opportunities to enhance value-added activities
D) Identify activities as value-added or non-value added

Question 38

Which of the following would be the first step in Activity-based management?

A) Identify and classify the activities related to the company's products
B) Identify opportunities to enhance value-added activities and to reduce or eliminate non-value-added activities
C) Identify activities as value-added or non-value added
D) Score each activity as high or low value-added as perceived by the customer

Question 39

Which of the following is a value-added activity?

A) Painting the final assembled product
B) Producing to build inventory
C) Rewriting faulty software code
D) Inspection to inspect out defective units

Question 40

Which of the following is not a value-added activity.

A) Setup of machinery in a manufacturing company
B) Making new products in a manufacturing company
C) Making customer calls in a sales department
D) Processing payments at the telephone company

Question 41

Which of the following is an example of a non-value added activity?

A) Storing excess inventory for future sales
B) Making products
C) Making customer contacts
D) Providing after sale service

Question 42

Which of the following statements is true?

A) Approval is usually a value-added activity
B) Setup of machines for production is a value-added activity
C) Processing itself is a source of non-value-added activity in many manufacturing firms
D) It may not be possible to eliminate all non-value-added activities

Question 43

Which of the following statements is False?

A) Activity-based management has a goal of eliminating all non-value added activities
B) An activity is value added if an external customer would encourage the organization to do more of that activity
C) An organization will be more likely to reach its goal by performing value-added activities
D) Some activities lie between the extremes of value added and non-value-added

Question 44

Which of the following is not a value-added activity?

A) Painting process in an automobile manufacturing company
B) Preparation of meals in a restaurant
C) Moving finished goods to finished goods warehouse in a manufacturing facility
D) Paying employees accurately and on a timely basis

Question 45

Which of the following would be a non-value-added activity in the payroll department of a large computer manufacturer?

A) Paying employees accurately
B) Data entry
C) Running check runs in a timely manner
D) Filing 941 data with the Federal Government to comply with tax reporting requirements

Question 46

Which of the following is a value-added activity in the claims division of a large insurance company?

A) Local agent forwards claim to claims processor
B) Claims processor logs in claim
C) Supervisor approves the claim
D) Claims processor cuts check to customer

Question 47

Which of the following is not a planning issue in Activity-Based-Management?

A) The intended scope of the project
B) The current customer base
C) Information gathering
D) Resistance to change

Question 48

Which of the following statements is True regarding activity-based-costing and profitability analysis?

A) Unit level costing measures the impacts of various products use of resources
B) Full costing measures the impacts of various products on spending for resources
C) Only unit level costing is useful for decision making about products and services
D) Companies with a complex array of products produced from common facilities tend to benefit more . from ABC than companies with a single product

Question 49

Which of the following would not be important to the successful implementation of activity-based costing and management in a large organization?

A) Personal computers and spreadsheet programs for each employee
B) Three to four person cross-functional teams with a commitment of at least four months time
C) Management commitment
D) Education and training programs for all employees

Question 50

Which of the following statements is false?

A) Some firms have tried Activity-Based-Costing and found that their costs exceeded their benefits
B) Activity-Based-Costing focuses on current processes while Activity-Based-Management is concerned
With improved processes
C) Activity-Based-Costing and Activity-Based-Management are simple and inexpensive to implement
D) Many recent applications of Activity-Based-Management have been in service departments of manufacturing firms rather than producing departments

Question 51

Which of the following companies would benefit least from Activity-Based-Costing?

A) A manufacturing company with multiple products of various shapes, sizes and complexities
B) A wholesale warehouse company shipping 4,000 products to both retailers and wholesalers
C) An electronics manufacturer producing various electronic products
D) A custom teddy bear company producing bears which are farmed out to local residents who make the bears in their homes

Question 52

Which of the following is not a resource necessary to successful implementation of Activity-Based Management?

A) Management commitment
B) Customer commitment
C) Cross-functional teams
D) Four to six months of full time effort

Question 53

Which of the following statements is False about recommended changes in the implementation of Activity- Based-Management?

A) Top managers have ultimate responsibility for authorizing and effecting major changes
B) Cross-functional teams will be more effective than individuals from the same department
C) Top management should be responsible for making the recommendations for change
D) Both A and C

Question 54

Which of the following is an example of a value-added-activity?

A) Storing excess inventory for future sales
B) Manual data entry
C) Making customer contacts and sales
D) Reworking faulty products

Question 55

Use the following to Ans questions :
Stow Machining is a compression-molding plastics company that specializes in high priced jar covers for the cosmetics industry. Because appearance is so important, customers can reject covers even for minor blemishes that do not affect the cover's function. Therefore, preventing dust and contamination in the molding process is an ongoing problem for the company. Each order requires a machine setup that can be complex. The company recently implemented some major process improvements. The value-added analysis of the compression-molding process for placing good pieces in inventory appears below:

Setup mechanics earn $25 per hour. All other factory labor earns $10 per hour.

-The savings for each 1,000 jar covers for setup labor after implementing the changes is:

A) $ 350
B) $2,100
C) $ 35
D) $ 420

Question 56

Use the following to Ans questions :
Stow Machining is a compression-molding plastics company that specializes in high priced jar covers for the cosmetics industry. Because appearance is so important, customers can reject covers even for minor blemishes that do not affect the cover's function. Therefore, preventing dust and contamination in the molding process is an ongoing problem for the company. Each order requires a machine setup that can be complex. The company recently implemented some major process improvements. The value-added analysis of the compression-molding process for placing good pieces in inventory appears below:

Setup mechanics earn $25 per hour. All other factory labor earns $10 per hour.

-The total savings per 1,000 jar covers after implementing the changes is:

A) $ 28.00
B) $420.00
C) $168.00
D) $378.00

Question 57

Use the following to Ans questions :
Stow Machining is a compression-molding plastics company that specializes in high priced jar covers for the cosmetics industry. Because appearance is so important, customers can reject covers even for minor blemishes that do not affect the cover's function. Therefore, preventing dust and contamination in the molding process is an ongoing problem for the company. Each order requires a machine setup that can be complex. The company recently implemented some major process improvements. The value-added analysis of the compression-molding process for placing good pieces in inventory appears below:

Setup mechanics earn $25 per hour. All other factory labor earns $10 per hour.

-The percentage total savings after implementing the changes is:

A) 38%
B) 84%
C) 86%
D) 75%

Question 58

Use the following to Ans questions :
Stow Machining is a compression-molding plastics company that specializes in high priced jar covers for the cosmetics industry. Because appearance is so important, customers can reject covers even for minor blemishes that do not affect the cover's function. Therefore, preventing dust and contamination in the molding process is an ongoing problem for the company. Each order requires a machine setup that can be complex. The company recently implemented some major process improvements. The value-added analysis of the compression-molding process for placing good pieces in inventory appears below:

Setup mechanics earn $25 per hour. All other factory labor earns $10 per hour.

-The company is considering accepting an order for a more complex jar cover from a major customer. It estimates that each 1,000 jar cover order will take an extra 120 minutes for setup due to the complexity of the molds and an extra 20 minutes for placing good pieces in boxes. Under the old system, with all personnel earning the wages stated above, what would be the cost to process a 1,000-unit order?

A) $192
B) $493.33
C) $43.33
D) $431.33

Question 59

Which of the following statements is false about pilot programs?

A) They are usually small scale
B) They test the feasibility of a proposed change
C) They require major use of resources
D) They are recommended for any major, systematic change in an organization

Question 60

Use the following to Ans questions :
Lawrence Corporation has recently performed a value-added analysis and ranking of activities. Presented below is an analysis of one sub-activity cost, sorted by value and cost:


-This comparison shows that:

A) Activity 3 has the greatest value to the company
B) Eliminating the lowest-value activity would cause costs to decline 33.5%
C) The greatest savings would be in eliminating activities with a value of 4 or 5
D) There is a total of $2,081 of costs that could be eliminated for savings in this process

Question 61

Use the following to Ans questions :
Lawrence Corporation has recently performed a value-added analysis and ranking of activities. Presented below is an analysis of one sub-activity cost, sorted by value and cost:


-If Lawrence eliminates the two activities with the least value-added, the total cost savings will be:

A) 52.82%
B) 10.27%
C) 36.91%
D) 70.41%

Question 62

Use the following to Ans questions :
Lawrence Corporation has recently performed a value-added analysis and ranking of activities. Presented below is an analysis of one sub-activity cost, sorted by value and cost:


-Under Activity-Based-Management, suggesting across-the-board percentage reductions in cost

A) Is an effective way to have all departments look for waste and inefficiency
B) Is a strong motivational tool since all departments are required to "share the pain equally."
C) Will likely ignore the causes of waste because non-value-added activities may occur disproportionately in an organization
D) Both A and B

Question 63

Use the following to Ans questions :
Listed below are warehousing sub-activities related to the warehousing activity of receiving beverages for a distributor of bottled waters


-In an activity listing with value-added scores:

A) Activity 1.4 would rank higher than activity 1.3
B) Activity 1.1 would rank higher than activity 1.3
C) Activity 1.5 would rank lower than activity 1.3
D) Activity 1.3 would have the highest ranking

Question 64

Use the following to Ans questions :
Listed below are warehousing sub-activities related to the warehousing activity of receiving beverages for a distributor of bottled waters


-In an activity listing with value added scores:

A) Activities 1.3 and 1.4 would have the same ranking
B) Activity 1.1 would have the lowest ranking
C) Activity 1.4 would have the highest ranking
D) Activity 1.3 would be ranked higher than activity 1.2

Question 65

Use the following to Ans questions :
Chelsea Toy Manufacturing has recently performed an activity-based costing analysis of one of its best-selling toys, the Main Man Robot. The analysis shows the following estimated monthly cost per 1,000 unit production run:


-Chelsea's management has targeted a required return of 20% of monthly revenues. To achieve its objective, Chelsea's monthly cost reduction target is:

A) $60,000
B) $10,000
C) $50,000
D) $0 - the company has already achieved its required return of 20%

Question 66

Use the following to Ans questions :
Chelsea Toy Manufacturing has recently performed an activity-based costing analysis of one of its best-selling toys, the Main Man Robot. The analysis shows the following estimated monthly cost per 1,000 unit production run:


-To achieve a required return of 30% of monthly revenues, the percent cost reduction target is:

A) 36%
B) 13.3%
C) 16%
D) 2%

Question 67

Use the following to Ans questions :
Chelsea Toy Manufacturing has recently performed an activity-based costing analysis of one of its best-selling toys, the Main Man Robot. The analysis shows the following estimated monthly cost per 1,000 unit production run:


-Assume that, due to excess demand, Chelsea is able to raise the selling price on Main Man Robot 10%. To achieve a return of 30% of total revenues, Chelsea's monthly cost reduction in dollars will need to be:

A) $0 - the increased sales eliminate the need for cost reduction
B) $19,000
C) $25,000
D) $33,000

Question 68

Use the following to Ans questions :
MJK Molding is a specialty molder of plastic jar covers for the cosmetics industry. Because the products sold are expensive cosmetics, the large cosmetic companies who purchase the jar covers are highly sensitive to the appearance of the product. Any cuts, nicks, abrasions or pieces of dirt embedded will result in rejection of the units. The company spends a significant amount of time in the quality control area. The following list of sub-activities has been developed for quality control:


-In an activity listing with value-added scores:

A) Activity 3.4 would be assigned a high value-added ranking
B) Activity 3.5 would be assigned a high value-added ranking
C) Activity 3.6 would receive the highest ranking
D) Activity 3.4 would receive a higher ranking than activity 3.1

Question 69

Use the following to Ans questions :
MJK Molding is a specialty molder of plastic jar covers for the cosmetics industry. Because the products sold are expensive cosmetics, the large cosmetic companies who purchase the jar covers are highly sensitive to the appearance of the product. Any cuts, nicks, abrasions or pieces of dirt embedded will result in rejection of the units. The company spends a significant amount of time in the quality control area. The following list of sub-activities has been developed for quality control:


-The sub-activities of this company indicate that:

A) The company has many value added activities because customers do not want to be shipped defective units
B) The company has many non-value added activities
C) The company should concentrate on eliminating defects during the production process
D) Both B and C

Question 70

Filing 941 payroll data with the Federal Government:

A) Is a non-value-added activity that should be eliminated because customers do not perceive it as having value
B) Would be necessary but does not add value from a customer's perspective
C) Should be assigned a high range value in a value ranking because it is required by law
D) Should be assigned a low range value in a value ranking because it does not help the company meet its goals

Question 71

Which of the following statements is true about using external customers to help perform value analysis?

A) External customers should always be used, since a value-added activity is one that has value in the eyes of the final customer
B) External customers should never be used because they usually have differing opinions as to what creates value
C) Some level of market research and analysis is essential to understanding what customers value
D) Customer surveys are the number one tool used in value-added analysis

Question 72

Use the following to Ans questions :
Consider the following information gathered from the records of TMC Manufacturing Company, a plastic molder of pieces for children's games. Pieces are shipped in lots of 500 units each.

All factory labor earns $15 per hour.

-The savings for each 500-unit order after implementing the process improvements are:

A) $18,577.50
B) $ 309.62
C) $ 6,040.00
D) $ 3,096.25

Question 73

Use the following to Ans questions :
Consider the following information gathered from the records of TMC Manufacturing Company, a plastic molder of pieces for children's games. Pieces are shipped in lots of 500 units each.

All factory labor earns $15 per hour.

-The percentage savings for each 500-unit order after implementing the process improvements will be:

A) 91%
B) 9%
C) 42%
D) 98%

Question 74

Classify each of the activities below as value-added (V) or non-value-added (N):

Question 75

Match the descriptions below with the appropriate phrase or term: Anss may be used more than once.

(a) Shipping units to final customer
(b) Marks and tracks all orders electronically
(c) Multiple layers of approval
(d) Spreadsheet function to help in analysis of value added activities
(e) Small scale model of limited scope
(f) Producing to build inventory
(g) Evaluates costs and values of process activities to identify opportunities for improved efficiency
(h) New ABC approach at American Airlines
(i) Focuses on understanding how resources are used in current processes

Question 76

Randolph Molding is a compression molding plastics company that specializes in high priced jar covers for the cosmetics industry. Because appearance is so important, customers can reject covers even for minor blemishes that do not affect the cover's function. Therefore, preventing dust and contamination in the molding process is an ongoing problem for the company. Each order requires a machine setup that can be complex. The company recently implemented some major process improvements. The value-added analysis of the compression molding process for placing good pieces in inventory appears below:

Required:
(a) Calculate the total savings for each 1,000-order jar cover from implementing the process improvements.
(b) Compute the savings in percentage terms.
Setup labor is paid $25 per hour. Inspection labor is paid $12 per hour and all other factory labor is paid $15 per hour.

Question 77

Shrewsbury Corporation has prepared an activity analysis for the molding department. The following activities and costs were recorded:

Required:
a) Rank the activities and costs from highest customer value (5) to lowest customer value (1).
b) What percentage of the costs represents non-value added activities? Provide justifications for your Anss.

Question 78

Estabrook Insurance Company is reviewing complaints from customers that the processing of insurance claims for glass damage in automobile accidents is taking an excessive amount of time. Customers complain of calls not being returned, delayed processing of insurance checks, talking to multiple people in the claims process and general confusion. It is taking customers up to one month to receive checks for damage claims. The subactivities involved at a local agency and the elapsed time to complete the activity for an average claim are presented below:

Required:
(a) Which of the above activities would be viewed as value-added from the eyes of the customer?
(b) What percentage of time is being spent on value-added activities?
(c) Comment on the process and make suggestions for improvement. (Source: Institute of Management Accountants- Regional Education Assistance Program - Seminar entitled "Process Mapping and Analysis"

Question 79

All factory labor is paid $15 per hour.
Required: Calculate the total cost savings and percentage cost savings of the process improvements. Below find the results of a process value analysis for Worcester Manufacturing Company:

Question 80

The average wage of warehouse workers is $20 per hour.
The work crew is 6 full time employees, each averaging 2,000 hours per year.
Required:
Listed below are sub activities (receiving products) related to the warehousing activities of Rocket Brothers, a local supermarket chain:

(a) Consider the sub activities listed above. Based on your judgment, rate each of the activities on a value-added scale from 1 to 5, with 5 being the most highly valued from an external customer's perspective.
(b) What percentage of the cost is being spent on non-value-added activities?
(c) What recommendations do you have for company management?