Deck 16: Managing Costs and Quality

Question 1

Prevention costs refer to costs incurred:

A) in preventing defects
B) because defective products or services are delivered to customers
C) in determining customer demand
D) when defective products or services are detected before leaving the business

Answer 1

A

Question 2

Consider a situation where an activity-based costing system is in use rather than a conventional volume-based costing system.Which of the following statements is/are true?

A) The use of activity-based costing eliminates the need to consider qualitative factors.
B) When an activity-based costing system is used,facility level costs will have to be analysed differently to the way they would be under a traditional volume-based costing system.
C) When an activity-based costing system is used,unit level costs will have to be analysed differently to the way they would be under a traditional volume-based costing system.
D) None of the given answers.

Answer 2

D

Question 3

Appraisal costs refer to costs incurred:

A) in preventing defects
B) in determining whether defects exist
C) because defective products or services are delivered to customers
D) in determining customer demand

Answer 3

B

Question 4

Which of the following statements is/are true in relation to activity-based management (ABM)?
I)ABM is primarily concerned with customer value
Ii)Activity-based costing is the primary source of data for ABM.
Iii)ABM is primarily concerned with the control of inputs.

A) i and ii
B) i and iii
C) ii and iii
D) All of the given answers

Question 5

Which of the following statements is/are correct?

A) Quality of design and quality of conformance are both important concepts in the measurement of excellence.
B) Quality of design is the degree to which a product meets design specifications.
C) Quality of conformance is the degree to which a product conforms to customer expectations.
D) All of the given answers.

Question 6

Which of the following are contemporary approaches to managing costs?

A) Life cycle costing
B) Target costing
C) Both life cycle costing and target costing
D) Neither life cycle costing nor target costing

Question 7

Which of the following statements is/are false?

A) Cost of quality reports analyse quality costs as a percentage of total sales.
B) An increase in quality costs indicates deterioration in quality performance.
C) There can be interactions between the quality costs.
D) The traditional view of quality costs is that total quality costs can be minimised by driving the defect rate down to the acceptable quality level.

Question 8

The following are the expected quality costs for a firm for a selected period.Calculate the amount of external failure costs.

A) $33 000
B) $37 500
C) $42 000
D) $37 000

Question 9

Internal failure costs refer to costs incurred:

A) in determining whether defects exist
B) because defective products or services are delivered to customers
C) in determining customer demand
D) when defective products or services are detected before leaving the business

Question 10

Which statement is incorrect?

A) Total quality management (TQM)relates only to the manufacturing processes.
B) TQM is customer-driven.
C) TQM focuses on the flow of activity across the organisation.
D) Continuous improvement is a key element of TQM.

Question 11

A series of pictures that shows the flow of activities that make up a process is called:

A) Pareto analysis
B) A process flow chart
C) A fishbone diagram
D) An Ishikawa diagram

Question 12

Which of the following is not a type of cost of quality?

A) External failure cost
B) Productive inefficiency cost
C) Prevention cost
D) Appraisal cost

Question 13

The following are the expected quality costs for a firm for a selected period.Calculate the amount of internal failure costs.

A) $5000
B) $7500
C) $8500
D) $9500

Question 14

Which of the following is not a characteristic of total quality management?

A) A focus primarily on internal customers
B) All members of the organisation are responsible for quality measures
C) Statistical process control
D) Continuous improvement measures

Question 15

The following are the expected quality costs for a firm for a selected period.Calculate the amount of appraisal costs.

A) $10 500
B) $9000
C) $11 000
D) $8500

Question 16

Appraisal costs in quality programs are incurred:

A) to value the fixed assets of the firm
B) to detect which production units do not conform to specifications
C) to value ending work in process
D) by external appraisers to value the costs of external failures

Question 17

The following are the expected quality costs for a firm for a selected period.Calculate the amount of prevention costs.

A) $32 000
B) $29 000
C) $31 000
D) $33 000

Question 18

Quality of conformance refers to:

A) the degree to which the product meets its design specifications
B) the extent to which the actual product is designed for its intended use
C) an ideal that can never be attained
D) a cost control that is achievable

Question 19

External failure costs refer to costs incurred:

A) in preventing defects
B) in determining whether defects exist
C) because defective products or services are delivered to customers
D) when defective products or services are detected before leaving the business

Question 20

In order to have a high-quality finished product:

A) appraisal costs must exceed external failure costs
B) the product's design specifications must meet customers' expectations
C) the product must meet the standards of its design
D) the product's design specifications must meet customers' expectations AND the product must meet the standards of its design

Question 21

Which of the following is a possible cause of a firm's reluctance to implement activity-based management (ABM)?
I Employee resistance to change
Ii)Lack of understanding of the benefits of ABM.
Iii)Significant resources required.iv.Focus is on value-added activities.

A) i,ii and iii
B) i,ii and iv
C) ii,iii and iv
D) i,iii and iv

Question 22

Which of the following activities are non-value-added activities?
I)Inspect work in process
Ii)Process sales orders
Iii)Repair drilling machine
Iv)Move raw material to the work station

A) i,iii and iv
B) i,ii and iv
C) i,ii and iii
D) ii,iii and iv

Question 23

If the target selling price is $120 and the target profit margin is a 40 per cent mark-up on cost,what is the target cost?

A) $48
B) $72
C) $85.70
D) $34.30

Question 24

Which of the following do conventional costing systems ignore?
I)Production costs
Ii)Design costs
Iii)Development costs
Iv)Marketing and customer service costs

A) i,ii and iii
B) i,ii and iv
C) ii,iii and iv
D) i,iii and iv

Question 25

Which of the following activities are value-added activities?
I)Preventive maintenance
Ii)Repairs to machinery
Iii)Move work-in-process inventory between machines
Iv)Process receivables

A) i and ii
B) iii and iv
C) i and iv
D) ii and iv

Question 26

Carwell has introduced a new product with a target price of $150 and a target cost of $90.What is the target percentage margin on sales?

A) 20%
B) 33.3%
C) 40%
D) 50%

Question 27

Cartel Ltd has introduced a new product with a target price of $240 and a profit requirement of 33.3 per cent on sales.What is the target cost?

A) $120
B) $160
C) $180
D) $200

Question 28

The following steps are required to implement business process re-engineering.i.Establish goals
Ii)Reorganise work flow
Iii)Prepare a business process map
Iv)Implementation
What is the correct order for these steps?

A) i,ii,iii and iv
B) i,iii,ii and iv
C) iii,i,ii and iv
D) ii,iii,i and iv

Question 29

A systematic approach in analysing the product and process design,with the aim of eliminating any non-value-added elements,to achieve the target cost is known as:

A) component level target costs
B) value engineering
C) strategic cost reduction
D) cost reduction objective

Question 30

Beaufort Ltd is introducing a new range of products.It has established that the target selling prices of the three products are $120,$150 and $210.Beaufort requires a profit mark-up on cost of 33.3 per cent for all its products.What percentage of the target prices is the target cost in each case?

A) 50%
B) 60%
C) 66.7%
D) 75%

Question 31

Which of the following are considerations in determining a target selling price?
I)Customer expectations
Ii)Competitors' actions
Iii)Product cost
Iv)Strategic objectives

A) i,ii and iii
B) ii,iii and iv
C) i,iii and iv
D) i,ii and iv

Question 32

In the process of target costing,where is the concentration of effort required to have the greatest impact on cost savings?
I)Product design
Ii)Process design
Iii)Production costs
Iv)After sales costs

A) i and ii
B) ii and iii
C) i and iii
D) ii and iv

Question 33

Orwell is about to introduce a new product and has established a target cost of $144 and a target margin on sales of 40 per cent.What is the target price?

A) $200
B) $225
C) $240
D) $280

Question 34

Which of the following statements is/are false?
I)Determining the cause of non-value-added activities requires cost driver analysis
Ii)Building activities into processes will quickly identify the causes of non-value-added activities.
Iii)Identifying root cause cost drivers is sufficient to enable non-value-added activities to be eliminated.

A) i and ii
B) ii and iii
C) i and iii
D) All of the given answers

Question 35

When we consider the life cycle sequence of a product,the majority of costs for a typical product have been committed by the end of:

A) product planning
B) design and development
C) customer support
D) production

Question 36

Given the current design and resources,the cost that a new product could be manufactured for,including upstream and downstream costs,is known as:

A) target cost
B) allowable cost
C) current cost
D) strategic cost

Question 37

Which of the following are possible root-cause cost drivers?
I)Complexity
Ii)Defects produced
Iii)Plant layout
Iv)Inadequate employee training

A) i,ii and iii
B) ii,iii and iv
C) i,iii and iv
D) All of the given answers

Question 38

Which of the following are key features of target costing?
I)Cross functionality
Ii)Market price driven
Iii)Focus on customer value
Iv)Based on life cycle management

A) i,ii and iii
B) i,iii and iv
C) i,ii and iv
D) All of the given answers

Question 39

The following four tasks take place in the concept known as target costing.i.Value engineering
Ii)Establish a target price
Iii)Establish a target cost
Iv)Establish a target profit
Which of the following correctly depicts the sequence of these tasks?

A) iii,i,iv and ii
B) ii,iv,iii and i
C) ii,iii,i and iv
D) iii,ii,i and iv

Question 40

Which of the following statements about re-engineering is/are true?
I)Re-engineering is the complete redesign of a process in an attempt to find new creative ways to accomplish objectivity
Ii)Re-engineering involves more of a 'giant leap' then the concept of activity-based management.
Iii)Re-engineering may entail high risks.

A) i and ii
B) i and iii
C) ii and iii
D) All of the given answers

Question 41

There are certain features of traditional management accounting.Which of the following is/are not a focus of life cycle costing?

A) Annual profit calculations
B) Focus on production costs only
C) Calculation of cost variances
D) Annual profit calculations AND focus on production costs only

Question 42

The removal of bottlenecks has which of the following benefits?
I)Increases customer value
Ii)Reduces costs
Iii)Improves quality
Iv)Increases profitability

A) ii,iii and iv
B) i,iii and iv
C) i,ii and iv
D) All of the given answers

Question 43

From a customer perspective,a value-added cost is one which:

A) increases the value of the product to the customer
B) the firm has determined is essential in the production of the product
C) on which the firm must focus
D) increases the value of the product to the customer,and the customer is prepared to pay for the added value

Question 44

From the following list of costs,determine the amount of non-value-added cost.

A) $17 000
B) $18 000
C) $16 000
D) $8000

Question 45

Assuming one answer only can be chosen,which of the following is a non-value-added activity for a manufacturing firm?

A) Machining a metal plate in the factory.
B) Packing finished product into cartons for delivery.
C) Moving partly finished production to storage.
D) Inserting a warranty-card and instruction booklet into the boxed product.

Question 46

When throughput increases with no change in operating expenses or inventory levels,then:

A) profit and return on investment will increase and cash flow will decrease
B) profit will increase and return on investment and cash flow will decrease
C) profit,return on investment and cash flow will increase
D) profit and cash flow will increase and return on investment will decrease

Question 47

From the following list of costs for a kitchen manufacturer,determine the amount of value-added cost.

A) $57 000
B) $54 000
C) $58 000
D) $59 000

Question 48

Which of the following statements is not specifically related to product life cycle costing?

A) It considers that costs in areas such as design,marketing and customer service should be included in the true cost of the product.
B) Costs are accumulated in responsibility centres,with managers of each centre being accountable for costs,revenues or return on investment.
C) Cost is more effectively managed by more attention to design of the process rather than effort spent on correcting an out-of-control process.
D) The amount of cash generated depends in part on the stage of the product life cycle.

Question 49

The theory of constraints focuses on:

A) idle time
B) poor quality
C) cost reduction
D) bottlenecks

Question 50

The contemporary management tool that focuses on restrictions that limit a firm's ability to maximise long-run profit is commonly known as:

A) linear progression
B) constraint manipulation
C) theory of constraints
D) game theory

Question 51

When inventory decreases with no change in throughput or operating expenses,then:

A) profit will increase and return on investment and cash flow will decrease
B) profit,return on investment and cash flow will increase
C) profit and cash flow will increase and return on investment will decrease
D) profit,return on investment and cash flow will decrease

Question 52

Throughput accounting uses which of the following measures of the effects of bottlenecks?
I)Financial measures of inventory
Ii)Financial measures of throughput
Iii)Non-financial measures of throughput
Iv)Operating expenses

A) i,ii and iii
B) ii,iii and iv
C) i,iii and iv
D) i,ii and iv

Question 53

Which of the following statements best describes performance measurement in line with continuous improvement?

A) Firms select relevant performance measures.
B) The measure will keep changing over time.
C) The measure will keep improving over time.
D) The firm targets an area to improve,moving the target until the desired outcome is achieved.The firm is then likely to target another area for improvement.

Question 54

Which of the following time drivers contribute to non-value-added activities?
I)Poor quality
Ii)Efficient inventory management
Iii)Bottlenecks in production
Iv)Poorly structured delivery processes

A) i,ii and iii
B) i,iii and iv
C) i,ii and iv
D) All of the given answers

Question 55

What management approaches might be used to overcome the problem of poorly structured production processes?
I)Value analysis to identify and remove non-value-added activities
Ii)Implement continuous improvement processes.
Iii)Process re-engineering.

A) i
B) i and iii
C) iii
D) All of the given answers

Question 56

Which of the following statements is consistent with target costing?

A) It does not consider market share or sales volume.
B) Market prices are used to determine product costs.
C) Product design has little or no regard to the long-run manufacturing costs.
D) It is described as a reactive costing strategy,rather than a proactive costing strategy.

Question 57

Which of the following methods may be used to overcome bottlenecks?
I)Increase manpower training
Ii)Increase overtime
Iii)Reduce work in process
Iv)Additional plant and equipment

A) i,ii and iii
B) ii,iii and iv
C) i,iii and iv
D) i,ii and iv

Question 58

Assume a production process that typically moves the following number of products through its five processes:
Assuming there is room for improvement in all processes,in what order of processes would the firm apply the theory of constraints to remove the bottlenecks?

A) 4 first,and then any order
B) 2,1,3,5,4
C) Work must be carried out in order of the physical flow of activities,i.e.1,2,3,4,5
D) 4,5,3,1,2

Question 59

Six sigma refers to:

A) business improvement methodology that involves rigours data analysis
B) The amount of quality deviation that is considered acceptable in total quality management
C) The formal quality accreditation relating to a series of standards recognised by an international quality setting agency
D) The six key features of total quality management

Question 60

Which of the following stages are considered in a product's life cycle?
I Preliminary design
Ii)Product pricing
Iii)Product decline

A) i and ii
B) i and iii
C) ii and iii
D) i

Question 61

Business process re-engineering is a radical approach to managing costs that involves a complete rethink of the processes undertaken to achieve major improvements in cost and quality.

Question 62

One way to manage throughput efficiently is to use a theory of constraints approach in an attempt to identify and remove bottlenecks in the system of production.

Question 63

One approach to cost reduction is to undertake value engineering where an analysis of design and production takes place with an aim to identify and eliminate non-value-adding activities.

Question 64

A target selling price can be calculated by deducting the target margin from the target cost.

Question 65

Cost drivers and a process perspective,are two of the main differences between contemporary and conventional approaches to cost management.

Question 66

Lazy Linda Kitchen Appliances has just begun the development of a new energy saving,voice-activated toaster.The accountant,Linda Rest,is preparing a life cycle budget.Which of the following costs should be included?
I)The salaries of the designers dedicated to the design of the new toaster
Ii)The committed costs associated with the acquisition of a new machine which manufacturers the voice recognition component of the toaster.
Iii)The cost of producing the new toasters.iv.The costs associated with establishing a distribution network for the new product.

A) i,ii and iii
B) i,iii and iv
C) ii and iii
D) All of these costs should be included

Question 67

If a company has quality accreditation ,the company is then known to practice total quality management.

Question 68

Which of the following statements about throughput accounting is false?

A) Throughput accounting is criticised for being short-term focus
B) Under throughput accounting,operating expenses are not relevant
C) Throughput accounting measures the financial effects of bottlenecks
D) Under throughput accounting,inventory is considered undesirable

Question 69

When a company uses an activity-based management system to reduce costs,the first step in the process is to determine the real causes of the costs.

Question 70

Three processes are involved in the manufacturing of Product X.First,the components go through the Machining Process,then the Assembling Process,and finally the Packaging Process.The hourly production capacity of the three processes is 500 units,600 units and 800 units respectively.How many units of Product X can be produced in one hour?

A) 500 units
B) 600 units
C) 800 units
D) 633 units

Question 71

If a firm needs to identify the root cause cost drivers of activities,the firm needs to undertake a thorough cost driver analysis.

Question 72

Lazy Linda Kitchen Appliances manufacturers small kitchen appliances like toasters and blenders.Last month Lazy Linda recorded the following quality costs:
Lazy Linda's total appraisal cost was:

A) $5000
B) $9500
C) $12 000
D) $18 000

Question 73

Lazy Linda Kitchen Appliances manufacturers small kitchen appliances like toasters and blenders.Last month Lazy Linda recorded the following quality costs:
Lazy Linda's total prevention cost was:

A) $5000
B) $11 000
C) $14 000
D) $15 500

Question 74

Quality costs - failure,prevention and appraisal - can be graphed to determine the acceptable quality level of a firm.

Question 75

Lazy Linda Ltd manufactures small kitchen appliances.One of the non-value added activities identified by the production manager is 'reworking the electrical component in a toaster'.Which of the following is a likely root cause cost driver?

A) The number of products requiring rework.
B) The quality of the completed toaster.
C) The quality of the electrical wiring purchased from suppliers.
D) Idle labour hours.

Question 76

Three processes are involved in the manufacturing of Chemical Z.First,the raw mixture goes through the Mixing Process,then the Heating Process,and finally the Bottling Process.The hourly production capacity of the three processes is 400 units,600 units and 400 units respectively.Assume that a recent process improvement has resulted in a 20 per cent increase in the capacity of the Bottling Process.This process improvement will:

A) Increase the production of Chemical Z by 80 units per hour
B) Increase the production of Chemical Z by 120 units per hour
C) Increase the production of Chemical Z by 200 units
D) Have no effect on the production level per hour

Question 77

Lazy Linda Kitchen Appliances manufacturers small kitchen appliances like toasters and blenders.Last month Lazy Linda recorded the following quality costs:
Lazy Linda's total external failure cost was:

A) $6000
B) $9000
C) $12 000
D) $15 000

Question 78

Lazy Linda Kitchen Appliances manufacturers small kitchen appliances like toasters and blenders.Last month Lazy Linda recorded the following quality costs:
Lazy Linda's total internal failure cost was:

A) $9500
B) $7500
C) $5000
D) $2000