Deck 14: Cost Management

Question 1

_____ are the results or products of an activity.

A) Activity inputs
B) Activity outputs
C) Cost driver analysis
D) Value-added activities

Answer 1

B

Question 2

_____ is the effort expended to identify those factors that are the root causes of activity costs.

A) Activity inputs
B) Activity outputs
C) Cost driver analysis
D) Value-added activities

Answer 2

C

Question 3

_____ are those activities necessary to remain in business.

A) Activity inputs
B) Activity outputs
C) Activity drivers
D) Value-added activities

Answer 3

D

Question 4

_____ is an effort to reduce costs of existing products and processes.

A) Kaizen costing
B) Activity elimination
C) Activity selection
D) Activity reduction

Question 5

The major source of information for the activity cost management system is

A) cost driver analysis.
B) an activity- based costing system.
C) a performance measurement system.
D) product information.

Question 6

Which of the following process dimensions of the activity-based management model deals with "how well"?

A) resources
B) cost driver analysis
C) activities
D) performance measures

Question 7

_____ are the resources consumed by the activity in producing its output.

A) Activity inputs
B) Activity outputs
C) Cost driver analysis
D) Value-added activities

Question 8

Which of the following process dimensions of the activity-based management model deals with "what"?

A) resources
B) cost driver analysis
C) activities
D) performance measures

Question 9

Which of the following process dimensions of the activity-based management model deals with "why"?

A) resources
B) cost driver analysis
C) activities
D) performance measures

Question 10

Which of the following is NOT a necessary condition for classification as a value-added activity?

A) the activity produces no change of state
B) the change of state was not achievable by preceding activities
C) activity enables other activities to be performed
D) All of the above are necessary conditions.

Question 11

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

A) supervision of production workers
B) inspection of products
C) scheduling of production
D) all are value-added activities

Question 12

_____ is the process of identifying, describing, and evaluating the activities an organization performs.

A) Activity inputs
B) Activity analysis
C) Cost driver analysis
D) Value-added activities

Question 13

Nonvalue-added activities

A) are unnecessary inputs.
B) are valued outputs to internal users.
C) are valued outputs to external users.
D) help meet the organization's needs, not the product needs.

Question 14

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

A) assembly
B) scheduling
C) finishing
D) all are value-added activities

Question 15

Which of the following is NOT an expected outcome of activity analysis?

A) What activities are performed?
B) How many people perform the activities?
C) The time and resources required to perform the activities
D) All of the above are expected outcomes.

Question 16

_____ involves choosing among various sets of activities that are caused by competing strategies.

A) Activity sharing
B) Activity elimination
C) Activity selection
D) Activity reduction

Question 17

Which of the following is a reason for managerial activity to be considered a value-added activity?

A) It is an enabling resource for operational activities that bring about a change of state.
B) Managing activities brings order by changing the state from uncoordinated activities to coordinated activities.
C) Both are reasons for classifying managerial activities as value-added activity.
D) Neither is a reason for classifying managerial activities as value-added activity.

Question 18

Which of the following is a value-added activity?

A) moving
B) inspection
C) processing
D) waiting

Question 19

_____ focuses on nonvalue-added activities.

A) Activity sharing
B) Activity elimination
C) Activity selection
D) Activity reduction

Question 20

Activity management attempts to

A) identify and eliminate all unnecessary activities.
B) increase the efficiency of necessary activities.
C) add new activities that increase value.
D) do all of the above.

Question 21

Larry Ltd.has developed ideal standards for four activities: labour, materials, inspection, and receiving. Information is as follows: The actual prices paid per unit of each activity driver were equal to the standard prices. The nonvalue-added costs for materials are

A) £1,575,000.
B) £157,500.
C) £150,000.
D) £75,000.

Question 22

A company has 20 days of finished goods inventory on hand to avoid stockouts. The carrying costs of the inventory average £5,000 per day. The value-added costs would be

A) £100,000.
B) £10,000.
C) £5,000.
D) £-0-.

Question 23

A company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average £4,000 per day. A competitor keeps 10 days of inventory on hand, and the competitor's carrying costs average £2,000 per day. The value-added costs are

A) £80,000.
B) £40,000.
C) £20,000.
D) £-0-.

Question 24

Value-added costs are standard costs based on

A) currently attainable standards.
B) ideal usage standards.
C) cycle time.
D) the value added.

Question 25

Sasha Cat Company sells one of its products for £100 each. Sales volume averages 750 units per year. Recently, its main competitor reduced the price of its product to £80. Sasha Cat Company expects sales to drop dramatically unless it matches the competitor's price. In addition, the current profit per unit must be maintained. Information about the product (for production of 750) is as follows: The nonvalue-added cost per unit is

A) £41.67.
B) £43.33.
C) £40.47.
D) £38.33.

Question 26

Which of the following focuses on the relationship of activity inputs to activity outputs?

A) activity reduction
B) quality
C) time
D) efficiency

Question 27

Setup time for a product is 12 hours. A firm that uses JIT and produces the same product has reduced setup time by 1 hour. Setup labour is £20 per hour. If the company wants to reduce nonvalue-added costs by 40 percent next year, the currently attainable standard for setup time would be

A) 7.6 hours.
B) 7.2 hours.
C) 6.6 hours.
D) 4.8 hours.

Question 28

For nonvalue-added activities that are unnecessary, the standard quantity is

A) one.
B) zero.
C) actual quantity minus standard price.
D) actual quantity plus standard price.

Question 29

A company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average £4,000 per day. A competitor keeps 10 days of inventory on hand, and the competitor's carrying costs average £2,000 per day. The nonvalue-added costs for the company are

A) £80,000.
B) £40,000.
C) £20,000.
D) £-0-.

Question 30

A time-and-motion study revealed that it should take 2 hours to produce a product that currently takes 6 hours to produce. labour is £8 per hour. The nonvalue-added costs are

A) £16.
B) £32.
C) £48.
D) £-0-.

Question 31

A time-and-motion study revealed that it should take 2 hours to produce a product that currently takes 6 hours to produce. labour is £8 per hour. The value-added costs are

A) £16.
B) £32.
C) £48.
D) £-0-.

Question 32

Larry Ltd.has developed ideal standards for four activities: labour, materials, inspection, and receiving. Information is as follows: The actual prices paid per unit of each activity driver were equal to the standard prices. The value-added costs for labour are

A) £900,000.
B) £792,000.
C) £84,000.
D) £75,000.

Question 33

A company has 20 days of finished goods inventory on hand to avoid stockouts. The carrying costs of the inventory average £5,000 per day. The nonvalue-added costs are

A) £100,000.
B) £10,000.
C) £5,000.
D) £250.

Question 34

Larry Ltd.has developed ideal standards for four activities: labour, materials, inspection, and receiving. Information is as follows: The actual prices paid per unit of each activity driver were equal to the standard prices. The nonvalue-added costs for inspection are

A) £420,000.
B) £60,000.
C) £480,000.
D) £40,000

Question 35

_____ decreases the time and resources required by different activities.

A) Activity sharing
B) Activity elimination
C) Activity selection
D) Activity reduction

Question 36

Each unit of product requires 16 pounds of material. Due to scrap and rework, each unit has been averaging 18 pounds of material. The material costs £6 per pound. If the company wants to reduce nonvalue-added costs by 25 percent next year, the currently attainable standard for material would be

A) 16.00 pounds.
B) 16.80 pounds.
C) 17.50 pounds.
D) 18.00 pounds.

Question 37

A firm's warranty costs are £125,000 per year. A competitor's warranty costs are £25,000 per year. The nonvalue-added costs are

A) £125,000.
B) £100,000.
C) £25,000.
D) £0.

Question 38

A time-and-motion study revealed that it should take 3 hours to produce a product that currently takes 7.5 hours to produce. labour is £18 per hour. The nonvalue-added costs are

A) £27.
B) £54.
C) £81.
D) £0.

Question 39

A firm's warranty costs are £125,000 per year. A competitor's warranty costs are £25,000 per year. The value-added costs are

A) £125,000.
B) £100,000.
C) £25,000.
D) £-0-.

Question 40

Larry Ltd.has developed ideal standards for four activities: labour, materials, inspection, and receiving. Information is as follows: The actual prices paid per unit of each activity driver were equal to the standard prices. The actual costs for receiving are

A) £85,500.
B) £67,500.
C) £49,500.
D) £18,000.

Question 41

Under what conditions would the activity capacity used be zero?

A) if the activity is value-added
B) if the activity is nonvalue-added
C) if the activity is discretionary
D) It would never be set at zero.

Question 42

Each unit of product requires 16 pounds of material. Due to scrap and rework, each unit has been averaging 18 pounds of material. The material costs £4 per pound. The value-added costs are

A) £4.
B) £8.
C) £64.
D) £72.

Question 43

Rollo Company has developed cost formulas for the drivers of the following production activities: The activity levels are projected to be as follows:
What is budgeted for this projected activity level?

A) £3,504,450
B) £1,655,430
C) £295,150
D) £165,543

Question 44

Reengineering is another name for

A) product innovation
B) process innovation
C) process improvement
D) product improvement

Question 45

Rollo Company has developed cost formulas for the drivers of the following production activities: If the actual activity was 20 setups and the actual fixed cost for inspections was £28,000 and the variable cost for inspections was £5,000, the total variance for inspections is due to

A) favorable variance on fixed costs.
B) unfavorable variance on fixed costs.
C) favorable variance on variable costs.
D) unfavorable variance on variable costs.

Question 46

Setup time for a product is 12 hours. A firm that uses JIT and produces the same product has reduced setup time to 1 hour. Setup labour is £6 per hour. The value-added costs are

A) £72.
B) £66.
C) £12.
D) £6.

Question 47

An activity analysis is used to determine

A) the activities an organization performs
B) how many people perform activities
C) the time and resources required to perform activities
D) all of the above

Question 48

Rollo Company has developed cost formulas for the drivers of the following production activities: The budgeted inspection cost for 20 setups is

A) £175,860.
B) £40,000.
C) £34,000.
D) £30,000.

Question 49

In a continuous improvement environment, waste includes

A) inventories
B) rework
C) setup time
D) all of the above

Question 50

Rollo Company has developed cost formulas for the drivers of the following production activities: If the actual activity was 20 setups and the actual fixed cost for inspections was £28,000 and the variable cost for inspections was £5,000, the total variance for inspections is

A) £2,000 favorable.
B) £2,000 unfavorable.
C) £1,000 favorable.
D) £1,000 unfavorable.

Question 51

The responsibility accounting system developed for operations in a continuous improvement environment would be

A) financial-based responsibility accounting
B) functional-based responsibility accounting
C) activity-based responsibility accounting
D) strategy-based responsibility accounting

Question 52

The purpose of trend reporting on nonvalue-added costs is to

A) trace resources to cost objectives.
B) assess value content.
C) define root causes.
D) see if cost reductions occurred as expected.

Question 53

Which of the following is not true about assigning rewards in activity-based responsibility accounting?

A) Rewards are assigned based on budgetary standards.
B) Rewards are assigned based on individual as well as team performance.
C) Rewards are assigned based on progress towards optimal standards.
D) Rewards include bonuses, profit sharing, and gainsharing.

Question 54

A company keeps 15 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average £5,000 per day. A competitor keeps 12 days of inventory on hand, and the competitor's carrying costs average £3,000 per day. The value-added costs are

A) £5,000.
B) £-0-.
C) £30,000.
D) £75,000.

Question 55

Which of the following is not an objective of activity-based management?

A) to improve decision making through better cost information
B) to increase the activity it takes to perform processes
C) to encourage cost reduction through continuous improvement
D) to increase profitability

Question 56

A technique for improving performance of activities and processes that searches for best practices is called

A) value-added reporting.
B) kaizen costing.
C) trend reporting.
D) benchmarking.

Question 57

Setup time for a product is 12 hours. A firm that uses JIT and produces the same product has reduced setup time to 1 hour. Setup labour is £6 per hour. The nonvalue-added costs are

A) £72.
B) £66.
C) £12.
D) £6.

Question 58

A technique for improving performance of activities and processes that compares the number of times an activity can be performed to the number actually performed is called

A) value-added activity reporting.
B) activity flexible budgeting.
C) activity capacity reporting.
D) activity trend reporting.

Question 59

Inspecting the components and the finished product is

A) necessary to assure TQM
B) a nonvalue-added activity
C) a value-added activity
D) none of the above

Question 60

Activity-based management attempts to

A) identify and eliminate all unnecessary activities
B) increase the efficiency of necessary activities
C) add new activities that increase value
D) do all of the above

Question 61

Figure 1
At the beginning of this year, Sammie Company installed a JIT purchasing and manufacturing system. The following information has been gathered about one of the company's products:
Refer to Figure 1 above. Sammie's theoretical cycle time for this year would be

A) 2.00 hours per unit
B) 1.80 hours per unit
C) 0.56 hours per unit
D) 0.50 hours per unit

Question 62

How does just-in-time manufacturing affect break-even analysis?

A) Variable costs are reduced with a corresponding increase in fixed costs.
B) Direct materials is the major variable cost.
C) Direct labour and maintenance are viewed as fixed costs.
D) all of the above

Question 63

Product life-cycle costs do NOT include which of the following?

A) development costs
B) production costs
C) costs of logistics support
D) All of the above are life-cycle costs.

Question 64

Which of the following is TRUE about a manufacturing cell?

A) There is increased movement of work in process.
B) It usually produces a particular product or product family.
C) Workers are highly specialized.
D) Supervision is important.

Question 65

The demand-pull system requires goods to be manufactured based on the

A) current demand
B) anticipated demand
C) previous year's demand
D) average of the next five years' demand

Question 66

Life-cycle cost management is particularly important for firms that have

A) short life cycles because those firms have less opportunity to take advantage of the time value of money
B) long life cycles because those firms have more opportunity to take advantage of the time value of money
C) long life cycles because those firms have more opportunity to enhance profit performance through product redesign or cost reduction
D) short life cycles because those firms have less opportunity to enhance profit performance through product redesign or cost reduction

Question 67

Figure 1
At the beginning of this year, Sammie Company installed a JIT purchasing and manufacturing system. The following information has been gathered about one of the company's products:
Refer to Figure 1. Sammie's goal for defective units as a percentage of total units produced would be

A) 3.0%
B) 2.5%
C) 1.5%
D) 0%

Question 68

Kaizen costing is

A) continuous improvement with the objective of cost reduction
B) characterized by constant improvements to existing processes and products
C) characterized by incremental improvement to existing processes and products
D) all of the above

Question 69

The majority of the product cost is "locked in" during which of the following life-cycle stages?

A) Introduction
B) Growth
C) Development
D) Decline

Question 70

Which of the following stages comes first?

A) Introduction
B) Growth
C) Development
D) Decline

Question 71

Figure 1
At the beginning of this year, Sammie Company installed a JIT purchasing and manufacturing system. The following information has been gathered about one of the company's products:
Refer to Figure 1. Sammie's actual cycle time for this year would be

A) 1.8 hours per unit
B) 0.90 hours per unit
C) 0.56 hours per unit
D) 0.50 hours per unit

Question 72

Figure 1
At the beginning of this year, Sammie Company installed a JIT purchasing and manufacturing system. The following information has been gathered about one of the company's products:
Refer to Figure 1 above. Sammie's defective units as a percentage of total units produced would be

A) 3.16%
B) 3.00%
C) 1.67%
D) 1.50%

Question 73

Which of the following describes a kaizen cost reduction process?

A) It has two process cycles, namely, continuous improvement and maintenance.
B) It includes a kaizen standard, which is an ideal standard.
C) A maximum standard is set for future performance based on the current kaizen standard attained.
D) both a and c

Question 74

Benchmarking

A) is an approach to standard setting that is used to identify opportunities for activity improvement
B) uses best practices as the standard for evaluating activity performance
C) Both a and b are correct.
D) Neither a nor b is correct.

Question 75

According to the life-cycle cost budgeting model, 90 percent of costs are incurred during the

A) development stage
B) production stage
C) postproduction stage
D) logistics support stage

Question 76

In comparison to a traditional environment, a JIT environment has more overhead assigned by

A) direct tracing
B) driver tracing
C) allocation
D) Overhead assignment is the same between traditional and JIT.

Question 77

The strategic objectives of JIT are

A) to increase profits
B) to improve a firm's competitive position
C) both a and b
D) neither a nor b

Question 78

The just-in-time (JIT) approach to inventory management

A) allows greater flexibility as to when products can be manufactured
B) results in higher inventory levels but reduces ordering and setup costs
C) results in lower inventory carrying costs
D) None of the above are correct.

Question 79

Cell workers have responsibility over

A) multiple tasks within the cell
B) providing input for continuous improvement
C) support activities within the cell
D) all of the above

Question 80

A target cost is

A) the standard cost
B) the difference between the sales price needed to capture a predetermined market share and the desired per-unit profit
C) the long-run average cost over the life cycle of the product
D) none of the above