Deck 15: Measuring and Assigning Costs for Income Statements

Question 1

Kaizen costing is a technique aimed at improvement of short-term profitability.

Answer 1

False

Question 2

Kaizen costing relies on price forecasts.

Answer 2

True

Question 3

Life cycle costing is incompatible with activity-based costing.

Answer 3

False

Question 4

A value chain is the sequence of business processes in which value is added to a product or service.

Question 5

Activities in the value chain are classified as value-added or non-value-added in many organizations.

Question 6

The decisions made during the design phase affect a large portion of product and manufacturing process costs. Therefore, target costing focuses on the design phase.

Question 7

Target costing is a technique to improve long-term profitability by considering product costs at the design phase.

Question 8

The supply chain involves suppliers, but not customers.

Question 9

Life cycle costing is used when a product is initially sold at a high profit.

Question 10

A target cost is the minimum cost a company should strive for to obtain its desired profit margin.

Question 11

Life cycle costing focuses on costs incurred in production, but not on those incurred when an operation is closed down and requires costly cleanup activities.

Question 12

In Kaizen costing, after targeted cost reduction goals are set, each department is assigned responsibility for specific cost reduction amounts.

Question 13

Life cycle costing considers cash flows over the entire life of products that have high development or decommissioning costs.

Question 14

An organization's value chain often includes suppliers and customers.

Question 15

Because inventory level information is in a company's internal accounting records, suppliers cannot access it.

Question 16

Life cycle costing is an alternative to job order and process costing.

Question 17

Kaizen costing and target costing are two names for the same thing.

Question 18

Kaizen costing is concerned with continuous improvement in product cost, quality, and functionality.

Question 19

Target costing works best when production processes are simple, rather than complex.

Question 20

Target costing involves not only cost, but also product quality and functionality.

Question 21

Which of the following are useful approaches for identifying non-value added services?
I) Activity-based management
II) Activity-based costing
III) Activity-based buying
IV) Activity-based throughput

A) I and II
B) I and III
C) II and IV
D) I, II, III, and IV

Question 22

Managers often break activities into four groups for value chain analysis. Which of the following is not an activity category among those four groups?

A) Unnecessary activities that cannot be eliminated
B) Necessary activities that could be changed to improve the process
C) Necessary activities that cannot be improved upon at this time
D) Unnecessary activities that can be eliminated quickly

Question 23

Which of the following factors would be part of a value chain for a manufacturer?

A) Customer service
B) Distribution management
C) Research and development
D) All of the above

Question 24

The Internet can often give suppliers information about their customers' inventory levels. Suppliers can then use this information to
I) Time deliveries to their customers
II) Improve their own production planning
III) Prepare financial statements

A) I and II
B) II and III
C) I and III
D) I, II, and III

Question 25

Lean accounting practices are only used for nonmanufacturing processes.

Question 26

Which of the following activities is unique to a manufacturing organization's value chain?

A) Distribution management
B) Customer service
C) Product manufacture
D) Marketing and sales

Question 27

Which of the following is not a typical outcome of implementing the just-in-time (JIT) system?

A) Reduction of costs
B) Lower defect rates
C) Increased manufacturing flexibility
D) Increased sales volume

Question 28

What is the main purpose of the value chain?

A) It leads to improved relationships between the organization and others in the value chain
B) It leads to improved profitability for all members of the value chain
C) It leads to a decreased cost base for the organization due to economies of scale
D) It leads to increased revenue for the organization due to more efficient operations

Question 29

Production under a value stream analysis system is based on customer demand.

Question 30

Value chain analysis is similar to value stream analysis only value chain analysis has more specific activity groups based on functional roles.

Question 31

Which of the following activities is not typically considered to be part of a manufacturing organization's value chain?

A) Making journal entries
B) Handling customer complaints
C) Designing and engineering new products
D) Manufacturing products

Question 32

An organization's value chain can incorporate its:
I) Own customers
II) Own suppliers
III) Customers' customers
IV) Suppliers' suppliers

A) I and II
B) I and III
C) II and IV
D) I, II, III, and IV

Question 33

Lean accounting is a set of accounting principles and methods designed to motivate continuous improvement.

Question 34

Which of the following terms is typically associated with just-in-time systems?

A) Demand-push system
B) Manufacturing cells
C) Non-value-added activities
D) Linear regression

Question 35

Which of the following immediately follows product and process design in the typical manufacturing value chain?

A) Research and development
B) Supplier and raw material management
C) Distribution management
D) Marketing and sales

Question 36

A value chain is the sequence of business processes in which:

A) Costs are determined with activity-based principles
B) Value is added to a product or service
C) All non-value-added activities are eliminated
D) Managers determine prices

Question 37

What is the difference between value-added activities and non-value-added activities?

A) Value-added activities result in an increased profit; non-value-added activities do not
B) Value-added activities directly affect customers; non-value-added activities do not
C) Value-added activities directly affect management; non-value-added activities do not
D) Value-added activities result in an increased ROI; non-value-added activities do not

Question 38

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

A) Accounting
B) Human resources
C) Manufacturing
D) Budgeting

Question 39

Which of the following is not typically associated with successful implementation of just-in-time (JIT) systems?

A) Find high quality suppliers
B) Locate suppliers with short transit times
C) Use as many suppliers as possible to minimize the risk of non-delivery
D) Develop management commitment to the JIT process

Question 40

Implementing a wireless network to reduce non-value added paperwork and improve inventory tracking would result most directly from:

A) Target costing
B) Kaizen costing
C) Value chain analysis
D) Life cycle budgeting

Question 41

Which of the following steps occurs first in a target costing design cycle?

A) Evaluate feasibility using a pilot project
B) Make product design choices to achieve the target cost
C) Determine the target cost
D) Determine product target price, quality, and functionality

Question 42

Rebekah is an accountant for CHC Corporation. Her boss has asked her to participate in a target costing project for a pen that will write upside down. Which of the following information sources would Rebekah use to determine a competitive price?

A) Consumer surveys
B) Reverse-engineering reports
C) Life cycle costing analyses
D) Rebekah does not need to determine a competitive price because the project is focused on a target cost

Question 43

Kaizen costing is:

A) Another name for target costing
B) Focused only on cost reduction
C) Continuous improvement in cost, quality, and functionality
D) A method for budgeting

Question 44

Under Kaizen costing, accountants forecast:

A) Declining prices and establish cost reduction goals to maintain a desired profit margin
B) Cost reduction goals and desired profit margins, then adjust prices accordingly
C) Declining profit margins and establish revenue and cost goals to meet them
D) Increasing profit margins and establish revenue and cost goals to meet them

Question 45

Consumer surveys, focus groups, and market research are:

A) Value-added activities
B) Information sources for target costing projects
C) Always part of a company's value chain
D) Information sources for cost-based pricing

Question 46

Kaizen costing relies on:

A) Sales forecasts of prices and volumes
B) Commodity markets
C) Zero-based budgeting processes
D) Classification based on cost behaviour

Question 47

Kaizen costing concepts can be applied to:

A) Variable costs only
B) Fixed costs only
C) Both variable and fixed costs
D) Mixed costs only

Question 48

Target costing is based upon:

A) A desired profit margin
B) Market-based prices
C) Historical prices
D) A desired cost structure

Question 49

BBM Corporation's managers are attempting to build a new product, a better mousetrap. They began by determining the features customers wanted and what they would pay for those features. BBM's engineers then reverse-engineered a competitor's product to understand its design and related production processes. Their analysis indicated that customers would pay $10.00 for a better mousetrap.
What process did BBM use according to the preceding scenario?

A) Kaizen costing
B) Value chain costing
C) Target costing
D) Life cycle costing

Question 50

BBM Corporation's managers are attempting to build a new product, a better mousetrap. They began by determining the features customers wanted and what they would pay for those features. BBM's engineers then reverse-engineered a competitor's product to understand its design and related production processes. Their analysis indicated that customers would pay $10.00 for a better mousetrap.
Why was it important for BBM's engineers to understand the product design and production processes of its competitor?

A) Most of the mousetrap's product costs are committed by that point in the value chain
B) They needed to explain them to customers to justify the better mousetrap's cost
C) The better mousetrap will only succeed if it is identical to their competitor's product
D) Understanding product design and production processes is not typically important; the engineers just wanted to better understand the process

Question 51

Which of the following steps occurs last in a target costing design cycle?

A) Determine product target price, quality, and functionality
B) Evaluate feasibility using a pilot project
C) Determine the target cost
D) Make product design choices to achieve the target cost

Question 52

After establishing a target cost for a product or service, managers assemble a product design team. The product design team usually comprises:
I) Product engineers
II) Marketing personnel
III) Accountants

A) I and II
B) I and III
C) II and III
D) I, II, and III

Question 53

Kaizen costing is similar to a budget except that Kaizen costing:

A) Does not use dollar amounts
B) Cannot be implemented in service organizations
C) Requires the use of the high-low method to forecast revenues
D) Provides for explicit cost reductions

Question 54

The formula to determine target cost is as follows:

A) Target cost = Price - Required profit margin
B) Target cost = Price - Direct costs
C) Target cost = Price - Required ROI
D) Target cost = Price - Indirect costs

Question 55

BBM Corporation's managers are attempting to build a new product, a better mousetrap. They began by determining the features customers wanted and what they would pay for those features. BBM's engineers then reverse-engineered a competitor's product to understand its design and related production processes. Their analysis indicated that customers would pay $10.00 for a better mousetrap.
If BBM's required profit margin is 25%, the target cost of a better mousetrap is:

A) $2.50
B) $7.50
C) $12.50
D) None of the above

Question 56

Target costing focuses on which of the following phases of production because it has the highest opportunity for cost savings:

A) Production
B) Quality control
C) Design
D) Research and development

Question 57

In target costing, managers can:

A) Focus on motivating customers to pay a higher price
B) Push some cost reductions to suppliers
C) Try to establish their product as a commodity
D) Justify higher costs by making production processes more complex

Question 58

When does Kaizen costing typically occur?

A) Before the product has been designed
B) After the product has been designed, but before the first production cycle is complete
C) After the product has been designed and after the first production cycle is complete
D) After the first production cycle is complete, but before the product has been designed

Question 59

Which of the following industries is least likely to implement target costing?

A) Food products and beverages
B) Heavy equipment manufacturers
C) Car manufacturers
D) Bicycle manufacturers

Question 60

Target costing is most likely to be successful when the:

A) Manufacturer is solely responsible for managing costs
B) Product is a commodity
C) Production process is complex
D) Managers and accountants make all of the decisions

Question 61

Although products are initially sold at a loss, under life cycle costing managers usually expect:
I) Sales volume increases for the product or related products over time
II) A shift to a commodity market over time
III) Cost reductions over time

A) I and II
B) II and III
C) I and III
D) I, II, and III

Question 62

In a lean accounting system, all of the following performance measures are used to control operations except:

A) Takt time
B) First time through (FTT)
C) WIP to SWIP
D) First in first out (FIFO)

Question 63

Managers can achieve planned cost reductions in a Kaizen costing system through
I) Value chain analysis
II) Gain-sharing programs with employees
III) Supply chain analysis

A) I and II
B) I and III
C) II and III
D) I, II, and III

Question 64

Sportstuff, Inc. is investigating the feasibility of adding a new skateboard to its line-up of products. The marketing department believes that 10,000 units can be sold at $90 each. Sportstuff requires a 25% profit margin (i.e. cost is 75% of selling price) on all products.
To achieve its goal, Sportstuff must keep per-unit costs equal to or less than:

A) $22.50
B) $67.50
C) $50.63
D) $90.00

Question 65

Which of the following statements regarding lean accounting is incorrect?

A) It emphasizes cost reduction and continuous improvement
B) Value stream analysis is used to examine and improve organizational processes from a customer perspective
C) Production occurs with a demand push system
D) Inventory is managed through a kanban system

Question 66

Lean accounting combines all of the following methods and concepts except:

A) Value chain analysis
B) Cellular manufacturing
C) Just in time inventory systems
D) Weighted average costing

Question 67

Sportstuff, Inc. is investigating the feasibility of adding a new skateboard to its line-up of products. The marketing department believes that 10,000 units can be sold at $90 each. Sportstuff requires a 25% profit margin (i.e. cost is 75% of selling price) on all products.
To achieve its goal, Sportstuff must earn revenues on the product of:

A) $225,000
B) $675,000
C) $506,250
D) $900,000

Question 68

Sportstuff, Inc. is investigating the feasibility of adding a new skateboard to its line-up of products. The marketing department believes that 10,000 units can be sold at $90 each. Sportstuff requires a 25% profit margin (i.e. cost is 75% of selling price) on all products.
If it achieves its goal, Sportstuff will have operating income on this product of:

A) $225,000
B) $675,000
C) $506,250
D) $900,000

Question 69

Which of the following is not true in regards to a demand pull system?

A) The practice encourages high levels of inventory
B) Customer demand pulls production through the manufacturing process
C) Production is managed by a kanban system
D) It requires a small, standard amount of inventory to be produced in order to avoid inventory buildup

Question 70

Sportstuff, Inc. is investigating the feasibility of adding a new skateboard to its line-up of products. The marketing department believes that 10,000 units can be sold at $90 each. Sportstuff requires a 25% profit margin (i.e. cost is 75% of selling price) on all products.
To achieve its goal, Sportstuff must keep total costs equal to or below:

A) $225,000
B) $675,000
C) $506,250
D) $900,000

Question 71

Life cycle costing is a:

A) Decision-making method that considers costs from the time the product is introduced through a number of years
B) Decision-making method that considers a target cost
C) Decision-making method that considers improvements in cost and quality over a product's life
D) Pricing method based on demand

Question 72

Life cycle costing can be used to identify unprofitable products due to high costs at the end of a product's life. Which of the following is the best example of such a product?

A) Nuclear reactors
B) Cherry orchards
C) CPA firms
D) Universities

Question 73

WDY Corporation currently sells its primary product for $85 per unit, with a profit margin of 30%. Cost of goods sold totals 40% of the product's total cost. WDY's managers are considering implementing a Kaizen costing system.
As part of its Kaizen costing project, WDY's accountants estimate the price of the product will decline by 20% next year. To maintain the same profit margin, the total cost per unit will have to be reduced by:

A) Less than 20%
B) Exactly 20%
C) More than 20%
D) Cannot be determined

Question 74

Target costing is a:

A) Pricing method based on variable cost
B) Decision-making technique for deciding whether to produce a product
C) Pricing method based on total cost
D) Technique for costing inventory for financial statements

Question 75

Which of the following is not a similarity between target costing and Kaizen costing?

A) They both rely on goal setting to achieve cost reduction
B) They both encourage organizations to work with suppliers to reduce costs
C) They both take advantage of the trade-offs between price, functionality and quality
D) They both occur at the beginning of the product life cycle

Question 76

WDY Corporation currently sells its primary product for $85 per unit, with a profit margin of 30%. Cost of goods sold totals 40% of the product's total cost. WDY's managers are considering implementing a Kaizen costing system.
WDY's current product cost (direct costs and manufacturing overhead) per unit is:

A) $25.50
B) $59.50
C) $23.80
D) $15.30

Question 77

Which of the following is a benefit of life cycle costing over target costing?

A) Life cycle costing is less likely to reject a product due to high up-front costs because it considers changes in price and costs over its entire life cycle
B) Life cycle costing is less expensive to administer than target costing
C) Products appear cheaper under life cycle costing because it does not consider research and development since this cost occurs prior to production
D) Life cycle costing focuses only on costs in the product's life cycle; thus eliminating defect and warranty costs often associated with products

Question 78

Life cycle costing can be used to focus managers' attention on:
I) Development costs
II) Decommissioning costs
III) Marketing costs

A) I and II
B) I and III
C) II and III
D) I, II and III

Question 79

WDY Corporation currently sells its primary product for $85 per unit, with a profit margin of 30%. Cost of goods sold totals 40% of the product's total cost. WDY's managers are considering implementing a Kaizen costing system.
As part of its Kaizen costing project, WDY's accountants estimate the price of the product will decline by 20% next year. If WDY is successful in achieving its Kaizen goal, the reduced nonmanufacturing cost (i.e., the cost excluding the product cost) per unit will be:

A) $47.60
B) $28.56
C) $19.04
D) $20.40

Question 80

FRM Corporation's managers have recently introduced new, more efficient equipment for feeding chickens. Under which of the following assumptions would life cycle costing be best applied?

A) The product is being sold at a loss
B) The product is being sold at a small profit
C) The product is being sold at a loss, but expected to add to profits over time
D) The product is being sold at a small profit, which is expected to decline over time