Deck 10: Fundamentals of Cost Management

Question 1

Quality can be defined as the degree to which a product or service performs as it was designed to do.

Answer 1

True

Question 2

Unused capacity costs incurred for the benefit of a company's customers (e.g. ,meet seasonal demands)should be assigned to the customers that require (use)the excess capacity.

Answer 2

True

Question 3

Unused resource capacity plus the amount of the resources used is equal to the amount of resources supplied.

Answer 3

True

Question 4

Theoretical capacity is the amount of production possible assuming expected downtime for scheduled maintenance and normal breaks and vacations.

Question 5

Activity-based costing (ABC)can be used to provide information for managerial decision-making in service,merchandising,and manufacturing companies.

Question 6

Managerial decisions based on activity-based costing (ABC)information affect only volume-level,batch-level,and product-level costs.

Question 7

Theoretical capacity is the long-run expected volume based on reasonably attainable working conditions.

Question 8

Tangible customer expectations include how the product's salespeople treat customers and the time required to deliver the product to the customer.

Question 9

The basic concepts involved in activity-based costing (ABC)can be used to determine customer profitability as well as product costs.

Question 10

In general,the unit-level costs in an activity-based costing (ABC)system are variable costs.

Question 11

Activity-based cost management (ABM)uses the information provided by activity-based costing (ABC)to identify ways to improve operations

Question 12

A cost of quality system is based on the trade-off between incurring costs to meet product (or service)specifications and the costs of failing to meet those specifications.

Question 13

Activity-based costing (ABC)techniques used to evaluate customer profitability can also be applied to evaluating suppliers.

Question 14

In general,managerial decisions affecting capacity-level costs and activities also affect volume-level,batch-level,and product-level cost and activities.

Question 15

In general,the capacity-level costs in an activity-based costing (ABC)system are variable costs.

Question 16

The cost driver rate is computed by dividing the total cost per activity by the estimated number of units produced.

Question 17

The difference between the resources used and the resources supplied is called unused resource capacity in a typical activity-based cost management (ABM)system.

Question 18

In general,decreasing (or eliminating)the resources committed to nonvalue-added activities will decrease customer response time.

Question 19

Internal failure costs include materials wasted in the production process and correcting products before they are sold.

Question 20

Storing materials,work-in-process items,and finished goods in inventory are essential,value-added activities in most companies.

Question 21

In an activity-based costing (ABC)system,cost reduction is accomplished by identifying and eliminating: (CPA adapted) $$\begin{array} { | c | c | c | } \hline & \text { All Cost Drivers } & \text { Non walue-adoled Acturities } \\\hline \text { A. } & \text { No } & \text { No } \\\hline \text { B. } & \text { Yes } & \text { Yes } \\\hline \text { C. } & \text { No } & \text { Yes } \\\hline \text { D. } & \text { Yes } & \text { No } \\\hline\end{array}$$

A) Option A
B) Option B
C) Option C
D) Option D

Question 22

Which of the following items would be classified as a product-level cost in an activity-based cost management (ABM)system?

A) Change order to meet a new customer's specification.
B) Movement of materials for products in production.
C) Long-term lease payments for factory equipment.
D) Insurance and property taxes on faculty building.

Question 23

Barter Company's cost management and product costing procedures follow activity-based costing (ABC)principles.Activities have been identified and classified as being either value-added or nonvalue-added for each product.Which of the following activities,used in Barter's production process,is nonvalue-added? (CPA adapted)

A) Drill press activity.
B) Heat treatment activity.
C) Design engineering activity.
D) Raw materials storage activity.

Question 24

Activity analysis is one of the first stages in implementing an activity-based costing system.Which of the following steps in "activity analysis" is usually performed first?

A) Classify all activities as value-added or nonvalue-added.
B) Chart,from start to finish,the activities used to complete the product or service.
C) Identify the process objectives that are defined by what the customer wants or expects from the process.
D) Continuously improve the efficiency of all value-added activities and develop plans to eliminate or reduce nonvalue-added ones.

Question 25

In an activity-based cost management (ABM)system,facility-level costs are those that are incurred to:

A) sustain the company's marketing program.
B) maintain the plant's production capacity.
C) support the research and development process.
D) cause a change in the engineering plans for a product.

Question 26

Republic Industries decides to price delivery service according to the results of a recent activity-based costing (ABC)study.The study indicates Republic should charge $8 per order,2% of the order's value for general delivery costs,$1.25 per item,and $30 for delivery.A year later,Republic collected the following information for two of its best customers:
$$\begin{array} { | l | r | r | } \hline \text { Cost driver } & \text { Customer C } & \text { Customer D } \\\hline \text { Number of orders } & 18 & 8 \\\hline \text { Number of deliveries } & 10 & 10 \\\hline \text { Number of items } & 2,000 & 4,000 \\\hline \text { Ordervalue } & \$ 120,000 & \$ 80,000 \\\hline\end{array}$$
What are the total delivery costs charged to Customer D during the year?

A) $5,344.
B) $5,364.
C) $6,900.
D) $6,964.

Question 27

Which of the following activities is most likely to be classified as value-added for a manufacturing company?

A) Storing.
B) Ordering.
C) Inspecting.
D) Assembling.

Question 28

Activity-based cost management (ABM)can best be defined as:

A) a cost system using multiple departmental overhead rates.
B) the use of cost information gathered using activity-based costing (ABC).
C) a quality-control system focusing on eliminating errors and mistakes.
D) an incentive system for a company's key decision-makers.

Question 29

Fence Industries is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Customer A } & \text { Customer B } \\\hline \text { Units purchased } & 100,000 & 200,000 \\\hline \text { Purchase orders (annual) } & 5 & 20 \\\hline\end{array}$$
What is the amount of the sales support costs that should be allocated to Customer B,assuming Fence uses units purchased to compute activity-based costs?

A) $2,400.
B) $4,000.
C) $8,000.
D) $9,600.

Question 30

Activity analysis is an important approach to operations control and the successful implementation of an activity-based costing (ABC)system.Which of the following procedures is not part of activity analysis?

A) Chart,from start to finish,the activities used to complete the product or service.
B) Classify all activities as either value-added or nonvalue-added activities.
C) Identify the process objectives as defined by what the customer desires from the process.
D) Compute the predetermined rate per activity by dividing the total cost pool by the total cost drivers.

Question 31

Fence Industries is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Customer A } & \text { Customer B } \\\hline \text { Units purchased } & 100,000 & 200,000 \\\hline \text { Purchase orders (annual) } & 5 & 20 \\\hline\end{array}$$
What is the amount of the sales support costs that should be allocated to Customer B,assuming Fence uses purchases orders to compute activity-based costs?

A) $2,400.
B) $4,000.
C) $8,000.
D) $9,600.

Question 32

Finesse 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:
$$\begin{array} { | l | l | } \hline \text { Number } & \text { Activity Description } \\\hline 3.1 & \begin{array} { l } \text { Move units from production area to inspection } \\\text { area }\end{array} \\\hline 3.2 & \text { Quality Control inspector reviews lots } \\\hline 3.3 & \begin{array} { l } \text { Quality Control inspector determines lots to be } \\\text { inspected }\end{array} \\\hline 3.4 & \text { Each unit is physically inspected } \\\hline 3.5 & \begin{array} { l } \text { Defective units are returned to production area } \\\text { for rework }\end{array} \\\hline 3.6 & \begin{array} { l } \text { Good units are sent to shipping for packaging } \\\text { and shipment to final customer }\end{array} \\\hline 3.7 & \begin{array} { l } \text { Record of units inspected is recorded in } \\\text { production office }\end{array} \\\hline\end{array}$$
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 33

Which of the following activities is most likely to be classified as value-added for a merchandise company?

A) Purchasing.
B) Waiting.
C) Receiving.
D) Setting up.

Question 34

Which of the following items would be classified as a batch-level cost in an activity-based cost management (ABM)system?

A) Indirect labor.
B) Production supervisor's salary.
C) Depreciation on factory building.
D) Machinery set-up costs.

Question 35

Which of the following statements about activity-based costing (ABC)is not true? (CIA adapted)

A) In ABC,cost drivers cause costs to be linked to products.
B) ABC is useful for assigning marketing and distribution costs.
C) ABC differs from traditional costing systems in that products are not cross-subsidized.
D) ABC is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.

Question 36

Fence Industries is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Customer A } & \text { Customer B } \\\hline \text { Units purchased } & 100,000 & 200,000 \\\hline \text { Purchase orders (annual) } & 5 & 20 \\\hline\end{array}$$
What is the amount of the sales support costs that should be allocated to Customer A,assuming Fence uses purchases orders to compute activity-based costs?

A) $2,400.
B) $4,000.
C) $8,000.
D) $9,600.

Question 37

Which of the following items would be classified as a volume-level cost in an activity-based cost management (ABM)system?

A) Indirect materials.
B) Production supervisor's salary.
C) Depreciation on factory building.
D) Research and development.

Question 38

Fence Industries is preparing its annual profit plan.As part of its analysis of the profitability of its customers,management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Customer A } & \text { Customer B } \\\hline \text { Units purchased } & 100,000 & 200,000 \\\hline \text { Purchase orders (annual) } & 5 & 20 \\\hline\end{array}$$
What is the amount of the sales support costs that should be allocated to Customer A assuming Fence uses units purchased to compute activity-based costs?

A) $2,400.
B) $4,000.
C) $8,000.
D) $9,600.

Question 39

McArthur Company has gathered the following data related to its production process of two of its products for the week ended April 30:
$$\begin{array} { | l | r | r | } \hline \text { Model } & \text { Item AB-200 } & \text { Item \#CA40 } \\ \text { Quantly procuced } & \mathbf { 6 0 } & \mathbf { 1 0 0 } \\\hline \text { Unit-level material cost } & \$ 42,000 & \$ 100,000 \\\hline \text { Variable conversion cost } & 72,000 & 300,000 \\\hline \text { Total drect costs } & \$ 114,000 & \$ 400,000 \\\hline \text { Indrect costs: } & & \\\text { Indirect manufacturing cost } & 163,200 & 272,000 \\\hline \text { Indirect operating cost } & \underline { 255,000 } & \underline { 425,000 } \\ \text { Total indirect costs } & \underline { 418,200 } & \underline {697,000} \\\hline \text { Total costs } & \underline { \$ 532,200 }& \underline { \$ 1,097,000} \\\hline\end{array}$$
The costs above that appear to be allocated rather than traced are:

A) Unit level material costs.
B) Variable conversion costs.
C) Indirect production costs only.
D) All indirect costs.

Question 40

Which of the following items would not be used as the cost driver for a volume-level cost in an activity-based cost management (ABM)system?

A) Direct labor hours.
B) Machine hours.
C) Units produced.
D) Square footage.

Question 41

The unused resource capacity is the difference between the resources supplied and the resources:

A) purchased.
B) wasted.
C) used.
D) on hanD.
This is the definition of unused resource capacity.

Question 42

Benton Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Vendor A } & \text { Vendor B } \\\hline \text { Units purchased } & 100,000 & 200,000 \\\hline \text { Purchase orders (annual) } & 6 & 24 \\\hline \text { Number of shipments received } & 12 & 52 \\\hline\end{array}$$
What is the amount of the purchasing costs that should be allocated to Vendor B,assuming Benton uses purchases orders to compute activity-based costs?

A) $9,600
B) $16,000
C) $32,000
D) $38,400

Question 43

Benton Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Vendor A } & \text { Vendor B } \\\hline \text { Units purchased } & 100,000 & 200,000 \\\hline \text { Purchase orders (annual) } & 6 & 24 \\\hline \text { Number of shipments received } & 12 & 52 \\\hline\end{array}$$
What is the amount of the purchasing costs that should be allocated to Vendor A,assuming Benton uses purchases orders to compute activity-based costs?

A) $9,600.
B) $16,000.
C) $32,000.
D) $38,400.

Question 44

South Beach Industries reports the following information about resources.At the beginning of the year,South Beach estimated it would spend $180,000 for materials,$42,000 for purchasing,$35,000 for setups,and $36,000 for repairs.C
ompute unused resource capacity for purchasing for South Beach.

A) $5,538.
B) $2,000.
C) $4,300.
D) $2,300.

Question 45

Benton Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Vendor A } & \text { Vendor B } \\\hline \text { Units purchased } & 100,000 & 200,000 \\\hline \text { Purchase orders (annual) } & 6 & 24 \\\hline \text { Number of shipments received } & 12 & 52 \\\hline\end{array}$$
What is the amount of the purchasing costs that should be allocated to Vendor B,assuming Benton uses number of shipments received to compute activity-based costs?

A) $9,000
B) $16,000
C) $32,000
D) $39,000

Question 46

Macon Publishing reports the following information about resources.At the beginning of the year,Macon estimated it would spend $42,000 for setups and $21,000 for clerical.Compute unused resource capacity for clerical for Macon Publishing.

A) $5,000.
B) $1,000.
C) $6,000.
D) $1,260.

Question 47

The amount of resources used in an activity-based costing (ABC)system for a specific activity is computed by multiplying the:

A) cost driver rate and the actual cost driver volume.
B) cost driver rate and the planned cost driver volume.
C) overhead rate and the actual cost driver volume.
D) overhead rate and the planned cost driver volume.

Question 48

Benton Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Vendor A } & \text { Vendor B } \\\hline \text { Units purchased } & 100,000 & 200,000 \\\hline \text { Purchase orders (annual) } & 6 & 24 \\\hline \text { Number of shipments received } & 12 & 52 \\\hline\end{array}$$
What is the amount of the purchasing costs that should be allocated to Vendor A,assuming Benton uses number of shipments received to compute activity-based costs?

A) $9,000.
B) $16,000.
C) $32,000.
D) $39,000.

Question 49

Benton Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Vendor A } & \text { Vendor B } \\\hline \text { Units purchased } & 100,000 & 200,000 \\\hline \text { Purchase orders (annual) } & 6 & 24 \\\hline \text { Number of shipments received } & 12 & 52 \\\hline\end{array}$$
What is the amount of the purchasing costs that should be allocated to Vendor B,assuming Benton uses units purchased to compute activity-based costs?

A) $9,600.
B) $16,000.
C) $32,000.
D) $38,400.

Question 50

Express Travel decides to price delivery service according to the results of a recent activity-based costing (ABC)study.The study indicates Express Travel should charge $16 per order,1% of the order's value for general delivery costs,$2.50 per item,and $45 for delivery.A year later,Express Travel collected the following information for three of its customers:
$$\begin{array} { | l | r | r | r | } \hline \text { Cost driver } & \text { Customer } & \text { Customer } & \text { Customer } \\&\text { A } & \text { B } & \text { C }\\ \text { Number of orders } &18&8&12 \\\hline \text { Number of }& \\\text { deliveries }&10&10&24\\\hline \text { Number of items } & 2,000 & 4,000 & 12,000 \\\hline \text { Ordervalue } & \$ 120,000 & \$ 80,000 & \$ 100,000 \\\hline \end{array}$$
What are the total delivery costs charged to Customer A during the year?

A) $5,738.
B) $6,650.
C) $6,938.
D) $20,235.

Question 51

Express Travel decides to price delivery service according to the results of a recent activity-based costing (ABC)study.The study indicates Express Travel should charge $16 per order,1% of the order's value for general delivery costs,$2.50 per item,and $45 for delivery.A year later,Express Travel collected the following information for three of its customers:
$$\begin{array} { | l | r | r | r | } \hline \text { Cost driver } & \text { Customer } & \text { Customer } & \text { Customer } \\&\text { A } & \text { B } & \text { C }\\ \text { Number of orders } &18&8&12 \\\hline \text { Number of }& \\\text { deliveries }&10&10&24\\\hline \text { Number of items } & 2,000 & 4,000 & 12,000 \\\hline \text { Ordervalue } & \$ 120,000 & \$ 80,000 & \$ 100,000 \\\hline \end{array}$$
What are the total delivery costs charged to Customer C during the year?

A) $16,863.
B) $20,000.
C) $31,272.
D) $32,272.

Question 52

Benton Company is preparing its annual profit plan.As part of its analysis of the cost of its purchasing activity,management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Vendor A } & \text { Vendor B } \\\hline \text { Units purchased } & 100,000 & 200,000 \\\hline \text { Purchase orders (annual) } & 6 & 24 \\\hline \text { Number of shipments received } & 12 & 52 \\\hline\end{array}$$
What is the amount of the purchasing costs that should be allocated to Vendor A,assuming Benton uses units purchased to compute activity-based costs?

A) $9,600.
B) $16,000.
C) $32,000.
D) $38,400.

Question 53

Crafter Lumber Supply noticed a recent decline in the amount of purchases from a key customer.Worried that other customers might also reduce their purchases,Crafter's management decided to evaluate the cost of its delivery service.Which of the following cost drivers is more appropriate for general administrative costs of the Delivery Department?

A) Number of different items ordered.
B) Value of each order.
C) Total number of items in each order.
D) Number of deliveries made.

Question 54

Macon Publishing reports the following information about resources.At the beginning of the year,Macon estimated it would spend $42,000 for setups and $21,000 for clerical.Compute unused resource capacity for setups for Macon Publishing.

A) $1,250.
B) $3,000.
C) $1,750.
D) $5,000.

Question 55

South Beach Industries reports the following information about resources.At the beginning of the year,South Beach estimated it would spend $180,000 for materials,$42,000 for purchasing,$35,000 for setups,and $36,000 for repairs.Compute unused resource capacity for repairs for South Beach.

A) $4,800.
B) $10,800.
C) $6,000.
D) $3,600.

Question 56

Activity-based costing (ABC)information cannot be used by managerial decision-makers to evaluate the:

A) profitability of a customer.
B) market potential of a product.
C) cost of using a particular supplier.
D) whether to continue providing a service.

Question 57

Express Travel decides to price delivery service according to the results of a recent activity-based costing (ABC)study.The study indicates Express Travel should charge $16 per order,1% of the order's value for general delivery costs,$2.50 per item,and $45 for delivery.A year later,Express Travel collected the following information for three of its customers:
$$\begin{array} { | l | r | r | r | } \hline \text { Cost driver } & \text { Customer } & \text { Customer } & \text { Customer } \\&\text { A } & \text { B } & \text { C }\\ \text { Number of orders } &18&8&12 \\\hline \text { Number of }& \\\text { deliveries }&10&10&24\\\hline \text { Number of items } & 2,000 & 4,000 & 12,000 \\\hline \text { Ordervalue } & \$ 120,000 & \$ 80,000 & \$ 100,000 \\\hline \end{array}$$
What are the total delivery costs charged to Customer B during the year?

A) $13,490.
B) $11,378.
C) $10,800.
D) $10,578.

Question 58

Republic Industries decides to price delivery service according to the results of a recent activity-based costing (ABC)study.The study indicates Republic should charge $8 per order,2% of the order's value for general delivery costs,$1.25 per item,and $30 for delivery.A year later,Republic collected the following information for two of its best customers:
$$\begin{array} { | l | r | r | } \hline \text { Cost driver } & \text { Customer C } & \text { Customer D } \\\hline \text { Number of orders } & 18 & 8 \\\hline \text { Number of deliveries } & 10 & 10 \\\hline \text { Number of items } & 2,000 & 4,000 \\\hline \text { Ordervalue } & \$ 120,000 & \$ 80,000 \\\hline\end{array}$$
What are the total delivery costs charged to Customer C during the year?

A) $5,344.
B) $5,364.
C) $6,900.
D) $6,964.

Question 59

South Beach Industries reports the following information about resources.At the beginning of the year,South Beach estimated it would spend $180,000 for materials,$42,000 for purchasing,$35,000 for setups,and $36,000 for repairs.
Compute unused resource capacity for materials for South Beach.

A) $12,700.
B) $3,500.
C) $19,270.
D) $9,200.

Question 60

South Beach Industries reports the following information about resources.At the beginning of the year,South Beach estimated it would spend $180,000 for materials,$42,000 for purchasing,$35,000 for setups,and $36,000 for repairs.Compute unused resource capacity for setups for South Beach.

A) $2,500.
B) $1,080.
C) $1,500.
D) $1,000.

Question 61

Water Industries' quality control report for August contains the following items.What would be the total of the prevention costs on the August quality control report for Water Industries? $$\begin{array} { | l | c | } \hline \text { Gathering, anabsis, and reporting quality data } & \$ 1,000 \\\hline \text { Inspecting raw materials received fromvendors } & 2,000 \\\hline \text { Testing and inspecting finished products } & 3,000 \\\hline \text { Visiting customer sites to test product } & 4,000 \\\hline \text { Designing product to reduce production problems } & 5,000 \\\hline \begin{array} { l } \text { Repairing andior replacing products under } \\\text { warranty }\end{array} & 6,000 \\\hline \text { Maintaining the equipment used to gather quality } \\\text { data } & 7,000 \\\hline \text { Cost (net) of materials wasted during production } & 8,000 \\\hline\end{array}$$

A) $5,000.
B) $7,000.
C) $11,000.
D) $15,000.

Question 62

Which of the following is an example of an internal failure cost?

A) Training employees to improve quality.
B) Designing products to reduce production problems.
C) Correcting product defects before they are sold.
D) Inspecting the production process as it occurs.

Question 63

A company has high winter demand and low summer demand for its services.The cost of the unused summer capacity should be allocated:

A) to an account called Idle Capacity.
B) evenly to all customers.
C) only to the winter customers.
D) only to the summer customers.

Question 64

Denim Products reports the following information about resources.At the beginning of the year,Denim estimated it would spend $84,000 for setups and $41,000 for quality testing.Compute unused resource capacity for quality testing for Denim Products.

A) $4,000.
B) $2,000.
C) $1,000.
D) $5,000.

Question 65

Scallon Products reports the following information about resources.At the beginning of the year,Scallon estimated it would spend $8,000 for energy and $12,000 for repairs.Compute unused resource capacity for repairs for Scallon Products.

A) $2,400.
B) $12,000.
C) $6,000.
D) $3,600.

Question 66

The degree to which a good or service meets specifications is called:

A) conformance to specifications.
B) customer quality demands.
C) a conformance cost.
D) a compliance cost.

Question 67

Which of the following items is included in almost all quality control systems?

A) Quality-related waiting time.
B) Quality planning and analysis.
C) Excess or obsolete inventory.
D) Quality-related overtime.

Question 68

Denim Products reports the following information about resources.At the beginning of the year,Denim estimated it would spend $84,000 for setups and $41,000 for quality testing.Compute unused resource capacity for setups for Denim Products.

A) $6,000.
B) $2,500.
C) $1,000.
D) $3,500.

Question 69

Which of the following statement is(are)true? (A)Unused capacity costs incurred for the benefit of a company's customers (e.g. ,meet seasonal demands)should be assigned to the customers that require (use)the excess capacity.(B)In general,managerial decisions affecting capacity-level costs and activities also affect volume-level,batch-level,and product-level cost and activities.

A) Only A is true.
B) Only B is true.
C) Both A and B are true.
D) Neither A nor B is true.

Question 70

Which of the following statements regarding the trade-off between conformance and nonconformance costs is(are)false? (A)The optimal level for a company's quality control program occurs when its conformance costs equal its nonconformance costs.(B)There is an inverse relationship between the costs spent on nonconformance costs and the level of quality achieved.

A) Only A is false.
B) Only B is false.
C) Both A and B are false.
D) Neither A nor B is false.

Question 71

Which of the following statements is(are)true? (A)Theoretical capacity is the long-run expected volume based on reasonably attainable working conditions.(B)The cost of excess capacity is allocated to individual cost objects using the cost driver rate.

A) Only A is true.
B) Only B is true.
C) Both A and B are true.
D) Neither A nor B is true.

Question 72

Marine Enterprises has developed the following unit costs for the production of one of its products,based on a normal activity of 10,000 units per month:
$$\begin{array} { | l | l | } \hline \text { Direct materials } & 2.0 \text { pounds } @ \$ 12 = \$ 24.00 \\\hline \text { Direct labor } & 1.5 \text { hours } @ \$ 15 = \$ 22.50 \\\hline \text { Variable overhead } & 120 \% \text { of direct labor cost } \\\hline \text { Fixed owerhead } & 140 \% \text { of direct labor cost } \\\hline\end{array}$$
What is the total amount of direct labor budgeted for a month in which production is expected to be 11,000 units?

A) $165,000.
B) $225,000.
C) $247,500.
D) $297,000.

Question 73

Scallon Products reports the following information about resources.At the beginning of the year,Scallon estimated it would spend $8,000 for energy and $12,000 for repairs.Compute unused resource capacity for energy for Scallon Products.

A) $8,000.
B) $1,080.
C) $1,420.
D) $2,500.

Question 74

Which of the following statements regarding quality costs is(are)false? (A)In a cost of quality system,internal and external failure costs are called conformance costs.(B)Prevention costs are costs incurred to detect individual units of product that do not conform to its specifications.

A) Only A is false.
B) Only B is false.
C) Both A and B are false.
D) Neither A nor B is false.

Question 75

Marine Enterprises has developed the following unit costs for the production of one of its products,based on a normal activity of 10,000 units per month:
$$\begin{array} { | l | l | } \hline \text { Direct materials } & 2.0 \text { pounds } @ \$ 12 = \$ 24.00 \\\hline \text { Direct labor } & 1.5 \text { hours } @ \$ 15 = \$ 22.50 \\\hline \text { Variable overhead } & 120 \% \text { of direct labor cost } \\\hline \text { Fixed owerhead } & 140 \% \text { of direct labor cost } \\\hline\end{array}$$
What is the total amount of overhead included in the overhead budget for a month in which production is expected to be 11,000 units?

A) $612,000.
B) $643,500.
C) $600,000.
D) $594,000.

Question 76

The amount of production possible under normal working conditions,including planned downtime and scheduled vacations,is called:

A) actual capacity.
B) normal capacity.
C) practical capacity.
D) theoretical capacity.

Question 77

Which of the following is not an example of a prevention cost?

A) Training employees to improve quality.
B) Designing products to reduce production problems.
C) Correcting product defects before they are sold.
D) Inspecting the production process as it occurs.

Question 78

Which of the following is an example of a prevention cost?

A) Machine inspection.
B) Warranty repairs.
C) Field testing.
D) Marketing costs.

Question 79

Which of the following is not an example of an external failure cost?

A) Accepting company liability resulting from product failure.
B) Experiencing decreasing sales as a result of poor-quality products.
C) Repairing or replacing defective products after they've been sold.
D) Testing products in use at the customer's site.

Question 80

Which of the following is not an explanation of why a company would operate at less than theoretical capacity?

A) Scheduled maintenance of equipment.
B) Breakdowns in equipment.
C) Customer demand is less than anticipated.
D) Customer demand is more than anticipateD.
More than anticipated customer demand would cause the company to operate at theoretical capacity.