Cost Accounting Systems

(C. Strategic Cost Management and JIT)

STRATEGIC COST MANAGEMENT AND JIT
THEORIES:
1. The major functions of management are
A. strategic management and long-range planning.
B. planning and decision making.
C. identifying threats and opportunities for the firm.
D. all of the above.
. The three major types of competitive strategy include
A. cost leadership! differentiation! and productivity.
B. cost leadership! focus! and productivity.
C. differentiation! focus! and productivity.
D. cost leadership! differentiation! and focus.
". #ustainability means the balancing of
A. short term and long term goals in economic performance.
B. short term and long term goals in social aspects.
C. short term and long term goals in environmental aspects.
D. all of the above.
$. #imultaneous engineering can be used to
A. reduce both product and process comple%ity.
B. integrate activity-based costing &ith value chain analysis.
C. reduce the time-to-market of ne& products through elimination of batch-level activities.
D. reduce manufacturing cycle efficiency by reducing process &aste.
'. (ngaging in &hich of the follo&ing &ill result in radical changes being made to an
organi)ation*s processes+
A. Continuous improvement C. ,eengineering
B. Benchmarking D. -ass customi)ation
.. /n the contemporary business environment! cost management focus is on
A. financial reporting and cost analysis.
B. common emphasis on standardi)ation and standard costs.
C. development and implementation of the business strategy.
D. a and c.
0. 1hich focuses on process improvement! process innovation! or business reengineering+
A.. functional-based responsibility accounting
B. activity-based responsibility accounting
C. strategic-based responsibility accounting
D. none of the above
2. The optimal level in the optimal cost management system is &hen
A. measurement costs are greater than error costs
B. measurement costs are less than error costs
C. the total of measurement costs and error costs are minimi)ed
D. both b and c
3. A repetitive action fulfilling a business function and increasing the &orth of the product and the
price that the customer is &illing to pay for the product is referred to as a4
A. non-value added activity
B. value-added activity
C. business value-added activity
D. activity analysis
15. The actual time that a product must be delayed &hile &aiting to be processed is called4
A. service time C. transfer time
B. inspection time D. idle time
11. The resource utili)ed by a given product divided by the total amount of the resource available
is called the
A. activity driver C. cost object
B. consumption ratio D. sustaining activity
1. The primary objective of just-in-time processing is to
A. accumulate overhead in activity cost pools
B. eliminate or reduce all manufacturing inventories
C. identify relevant activity cost drivers
D. none of them
1". The benefits of a successful 6ust-/n-Time system include all of the follo&ing e%cept4
A. funds tied up in inventories are released for use else&here.
37
Cost Accounting Systems
(C. Strategic Cost Management and JIT)
B. inventory buffers are increased.
C. throughput time is reduced.
D. defect rates are decreased.
1$. 1hich of the follo&ing is not a benefit of just-in-time processing+
A. Control of significant inventory balances.
B. (nhanced product 7uality.
C. ,eduction of re&ork costs.
D. 8roduction cost savings.
1'. A key concept of the 6/T inventory system is4
A. the ra& materials! &ork in process! and finished goods inventories of manufacturing
companies act as buffers so that operations can proceed smoothly even if suppliers are
late &ith deliveries or a department is unable to operate for a brief period due to
breakdo&ns or other reasons.
B. the use of many suppliers so as to ensure rapid delivery of materials for production.
C. the maintenance of a stock of ra& materials so that defective materials can be replaced
7uickly so as to maintain a high rate of productivity.
D. inventories are costly to carry and can be kept to minimum levels or eliminated
completely &ith careful planning.
1.. The just in time 96/T: concept applies to &hich of the follo&ing4
/. The ac7uisition of ra& materials.
//. The assembly of manufactured parts in products.
///. The shipment of finished products to customers.
A. /. C. /! //! ///.
B. /! ///. D. //! ///.
10. The flo& of goods through a 6/T system is based on4
A. a &orkstation efficiently completing its processing of a batch of units so that the units
can proceed for&ard to the ne%t &orkstation before the ne%t &orkstation is ready to
receive them.
B. processing goods in large batch si)es rather than less economical small batches.
C. maintaining a stockpile of ra& materials in anticipation of materials shortages.
D. producing to meet customer demand &ith no buildup of inventory at any point in the
production process.
12. ;nder just-in-time processing
A. ra& materials are received just in time for use in production
B. subassembly parts are completed just in time for use in assembling finished goods
C. finished goods are completed just in time to be sold
D. all of the above
13. A successful 6/T system is based upon &hich of the follo&ing concepts+
A. The company must rely upon a large number of suppliers to ensure fre7uent deliveries
of small lots.
B. The company should al&ays choose those suppliers offering the lo&est prices.
C. The company should avoid long-term contracts &ith suppliers so as to e%ert pressure
on suppliers to make prompt and fre7uent deliveries.
D. A small number of suppliers make fre7uent deliveries of specific 7uantities thus
avoiding the buildup of large inventories of materials on hand.
5. A company adopting the 6/T approach &ould4
A. produce large batches of products so as to recoup the costs associated &ith setups.
B. attempt to reduce setup time so as to economically produce in smaller batches.
C. adapt a functional plant layout so as to enhance production fle%ibility.
D. re7uire &orkers to become highly speciali)ed in operating a single machine.
1. Conventional and just-in-time manufacturers differ in that the conventional manufacturer is
likely to
A. be a ne& entrant into its industry.
B. need less storage space than its 6/T competitors.
C. give less credibility to management accounting reports.
D. have a longer production cycle than its 6/T competitors.
. /n 6/T manufacturing! each operation produces
A. only &hat is necessary for the succeeding operations
B. all that it can to offset fi%ed costs
C. a fi%ed percentage in e%cess of orders to ensure ade7uate 7uality stock
D. all that it can in order to build inventories
". -any companies have significantly lo&ered inventory levels and costs using
A. activity-based costing.
B. an enterprise resource planning system.
C. the just-in-time method.
D. a total 7uality management system.
38
Cost Accounting Systems
(C. Strategic Cost Management and JIT)
$. 6/T manufacturing emphasi)es
A. large amounts of inventory on hand so that the company does not run out of it
B. small amounts of inventory on hand resulting in lo&er 7uality goods because production
is rushed
C. reducing investment in inventory and increasing the emphasis on 7uality
D. both b and c
'. A just-in-time manufacturer is more likely than a conventional manufacturer to
A. receive more fre7uent deliveries of materials.
B. spend less money on advertising.
C. need &orkers &ith fe&er skills.
D. all of the above.
.. 6ust-in-time manufacturing
A. is a demand pull rather than a push through the system
B. allo&s the firm to focus on 7uality and productivity simultaneously
C. increases product cost accuracy by increasing a firm<s ability to track costs to products
D. all of the above
0. /f 6/T manufacturing is used! maintenance of the production e7uipment &ould be classified
as a
A. unit-level activity C. product-level activity
B. cell-level activity D. facility-level activity
2. ;nder 6/T manufacturing! many overhead costs formerly classified as indirect costs are no&
A. eliminated C. no longer traceable
B. depreciated D. directly traceable to the product
3. 1hen 6/T manufacturing is used! &hich of the follo&ing costs is considered an indirect
product cost+
A. the cost to set up cell e7uipment C. property ta%es on the plant
B. the cost of maintenance on e7uipment D. salary of the cell supervisor
"5. 1hen 6/T manufacturing is used! &hich of the follo&ing costs is considered a direct product
cost+
A. insurance on the plant and e7uipment C. janitors< salary
B. repair parts for the machinery D. salary of the plant supervisor
"1. 8roblems encountered &ith using traditional product costing for 6/T manufacturing usually
stem from
A. assigning direct materials costs to units of product.
B. assigning direct labor costs to units of product.
C. assigning overhead costs to units of product.
D. all of the above.
". A characteristic of the just-in-time manufacturing environment is
A. fre7uent deliveries of materials
B. manufacturing cells
C. little or no inventory of finished product
D. all of the above
"". 6ust-in-time relates to
A. people getting to their job location just in time to begin their &ork.
B. machinery placed in service just in time to begin production.
C. materials received from suppliers just in time for production needs.
D. all of the above.
"$. 1hich of the follo&ing is a value-added activity+
A. (ngineering design. C. /nventory storage.
B. -achinery repair. D. /nspections.
"'. 1hich of the follo&ing is a nonvalue-added activity+
A. (ngineering design. C. /nspection.
B. -achining. D. 8ackaging.
".. A nonvalue-added activity in a service enterprise is
A. taking appointments. C. advertising.
B. traveling. D. all of them.
"0. =alue-added activities
A. should be reduced or eliminated.
B. involve resource usage that customers are &illing to pay for.
C. add cost to a product &ithout affecting the selling price.
D. cannot be differentiated from nonvalue-added activities.
39
Cost Accounting Systems
(C. Strategic Cost Management and JIT)
"2. The company*s goal for defective units as a percentage of total units produced should be4
A. 1.'5> C. 5.5'>
B. 5.55> D. 5.'">
"3. All of the follo&ing are e%amples of non-value-added activities e%cept
A. ordering C. receiving
B. assembling D. inspections
$5. #e7uencing if-then statements is a simple method of4
A. testing a strategy C. creating lead measures
B. prioriti)ing objectives D. evaluating performance
$1. #etting balanced objectives! setting target values! and aligning re&ards are4
A. necessary steps in creating a balanced scorecard
B. important aspects of the capital budgeting process
C. the heart of process innovation
D. the ingredients for economic forecasting
$. Delivery performance declines by4
A. increasing cycle time C. increasing velocity
B. decreasing cycle time D. decreasing turnover
$". 6ust-in-time processing
A. is based on a just-in-case philosophy.
B. results in a push approach.
C. minimi)es inventory storage and &aiting time.
D. all of these.
$$. An element of just-in-time processing is
A. dependable suppliers &ho are &illing to deliver on short notice.
B. a multi-skilled &orkforce.
C. a total 7uality control system.
D. all of them.
$'. 1hich account is used in just-in-time processing+
A. ,a& materials inventory C. -erchandise inventory
B. 1ork in process inventory D. ,a& and /n-8rocess inventory
$.. ;nder just-in-time processing! all of the follo&ing are received or completed ?just in time@
e%cept
A. finished goods. C. supplies.
B. ra& materials. D. subassembly parts.
$0. A just-in-time manufacturing process should have substantially less of &hich of the follo&ing
than a traditional manufacturing process+
A. B. C. D.
/dle Time Aes Aes Aes Bo
Transfer Time Aes Bo Aes Aes
=alue-added Time Aes Bo Bo Bo
Cycle Time Aes Aes Aes Bo
$2. -anufacturing cycle efficiency should be increased by employing &hich of the follo&ing
techni7ues+
A. B. C. D.
6ust-in-Time /nventory Aes Aes Bo Aes
Cle%ible -anufacturing #ystems Aes Aes Bo Bo
Batch -anufacturing Aes Bo Bo Aes
Question Nos. 49 and 50 ae !ased on t"e #o$$o%in&:
#mall Computer Company has the follo&ing personnel4
/. T&o inspectors4 inspect the final computers
//. Cour fabricators4 make the computer cases
///. T&o computer programmers4 run all of the bookkeeping for the accounting records
/=. #even assemblers4 manufacture the mother boards
=. Dne o&ner4 &rites the paychecks
$3. 1hich groups of employees are value-added &orkers+
A. / and // C. // and ///
B. /// and = D. // and /=
'5. 1hich groups of employees are non-value-added &orkers+
A. /! //! and /// C. /! /// and =
B. ///! /=! and = D. /! //! and /=
'RO()EMS:
40
Cost Accounting Systems
(C. Strategic Cost Management and JIT)
Euestions 1 F are based on the follo&ing information.
Brad Company developed the follo&ing budgeted life-cycle income statement for t&o proposed
products. (ach product*s life cycle is e%pected to be t&o years.
8roduct A 8roduct B Total
#ales 8"5!555 85!555 8$'5!555
Cost of goods sold 1'5!555 1'5!555 "55!555
Gross profit 8 25!555 8 05!555 81'5!555
8eriod e%penses4
,esearch and development 9.5!555:
-arketing 9'5!555:
Hife-cycle income 8$5!555
A 15> return on sales is re7uired for ne& products. Because the proposed products did not have
a 15> return on sales! the products &ere going to be dropped.
,elative to 8roduct B! 8roduct A re7uires more research and development costs but fe&er
resources to market the product. #eventy percent of the research and development costs are
traceable to 8roduct A! and $5 percent of the marketing costs are traceable to 8roduct A.
1
. /f research and development costs and marketing costs are traced to each product! life-cycle
income for 8roduct A &ould be
A. 812!555 C. 805!555
B. 8!555 D. 825!555

. ,eturn on sales for 8roduct A &ould be

A. "$.2> C. 0.2">
B. 15> D. 2.23>
Euestions " F $ are based on the follo&ing information.
1ine Cactory sells a product for 81'5 per unit. /ts market share is ' percent. The marketing
manager feels that the market share can be increased to "" percent &ith a reduction in price to
81"5. The product is currently earning a profit of 8$ per unit. The president of 1ine Cactory
feels that the 8$ profit per unit must be maintained.
"
. 1hat is the target cost per unit+
A. 81"5 C. 815.
B. 81'5 D. 81.
$
. 1hat is the original cost per unit+
A. 81"5 C. 815.
B. 81'5 D. 81.
'
. Iristec Company sells a product for 81' per unit. /ts market share is 5 percent. The
marketing manager feels that the market share can be increased to "5 percent &ith a
reduction in price to 813'. The product is currently earning a profit of 8$' per unit. The
president of Iristec Company feels that the 8$' profit per unit must be maintained. 1hat is
the original cost per unit+
A. 8105 C. 81'
B. 813' D. 81'5
Question Nos. * and + ae !ased on t"e #o$$o%in&:
8rior to installing a 6/T system! Criendly Company used machine hours to assign maintenance
costs to its three products of $-inch! .-inch! and 3-inch insulation. The maintenance costs totaled
82$5!555 per year. The machine hours used by each product and the 7uantity produced of each
product are as follo&s4
-achine Iours Euantity 8roduced
$-inch .!555 1'!555 rolls
.-inch 15!555 1!'55 rolls
3-inch 2!555 11!55 rolls
After installing 6/T! three manufacturing cells &ere created and the cell &orkers &ere trained to
perform maintenance. -aintenance costs for the three cells still totaled 82$5!555J ho&ever! these
costs are no& traceable to each cell.
Cell! $-inch 85!555
Cell! .-inch "55!555
Cell! 3-inch "5!555
.
. The maintenance cost per roll of $-inch insulation before 6/T is installed &ould be
A. 8$.55 C. 81$.55
B. 810.'5 D. 81".1.
0
. The maintenance cost per roll of 3-inch insulation before 6/T is installed &ould be
A. 810.'5 C. 82.'0
B. 8'.55 D. 80'.55
41
Cost Accounting Systems
(C. Strategic Cost Management and JIT)
2
. The product cell for Crane Company has budgeted conversion costs of 8$5!555 for the
year. The cell is planned to be available !155 hours for production. (ach unit re7uires
81.'5 of materials costs. The cell started and completed 055 units. The cell process time
for the product is 1' minutes per unit.
1hat is the total product cost for the period+
A. 8"'!555 C. 8$5!555
B. 8"2!0'5 D. 8$"!0'5
3
. Big Computers has the follo&ing personnel4
#even assemblers4 manufacture the mother boards
Dne o&ner4 &rites the paychecks
T&o inspectors4 inspect the final computers
Three fabricators4 make the computer cases
Dne computer programmer4 runs all of the bookkeeping for the accounting records
T&o shipping clerksJ ship computers to the &arehouse
1hat &ould be the value-added labor ratio for this company+
A. $K2 or "0.' percent C. 'K2 or ..' percent
B. L or '5 percent D. M or 0' percent
Euestions 15 F 11 are based on the follo&ing information.
At the beginning of 55'! 8eterson Company installed a 6/T purchasing and manufacturing system.
The follo&ing information has been gathered about one of the company*s products4
Theoretical annual capacity !55
Actual production !555
8roduction hours available 255
Dn-time deliveries 355
Total deliveries 3'5
15
. The theoretical velocity is4
A. ." units per hour C. .' units per hour
B. .$$ units per hour D. .0' units per hour
11
. Actual velocity is4
A. .' units per hour C. ." units per hour
B. .0' units per hour D. .$$ units per hour
1
. Dapitan! /nc. manufactures a product that e%periences the follo&ing activities4
8rocessing 9three departments: $5 hours
-oving 9four moves: 12 hours
1aiting time $ hours
#torage time 9before delivery: 155 hours
The -C( for the product is
A. '> C. 5>
B. '> D. $5>
1"
. At the beginning of 550! #anche) Company installed a 6/T purchasing and manufacturing
system. The follo&ing information has been gathered about one of the company*s products4
Theoretical annual capacity !55
Actual production !555
8roduction hours available 1!555
Dn-time deliveries 355
Total deliveries 3$5
Bumber of defective units "5
The company*s on-time delivery percentage is4
A. 35 percent C. 3$ percent
B. 3'.0 percent D. 15$.$ percent
42
1
. Ans&er4 A
Gross profit 825!555
Deduct4
,esearch and development costs 95.05 % 8.5!555: 9 $!555:
-arketing costs 95.$5 % 8'5!555: 9 5!555:
Hife-cycle income of 8roduct A 812!555
2
. Ans&er4 C
,eturn on sales! 8roduct A4 9812!555 N 8"5!555: O 0.2">
3
. Ans&er4 C
Target price 81"5
Hess target profit $
Target cost 815.
4
. Ans&er4 D
Driginal selling price 81'5
Hess profit $
Driginal unit cost 81.
5
. Ans&er4 A
Driginal Cost4 981' P 8$': O 8105
6
. Ans&er4 C
-aintenance cost per -I4 982$5!555 N $!555: 8'
-aintenance cost per roll! $-/nch 9.!555 % 8"' N 1'!555: 81$
7
. Ans&er4 C
-aintenance cost per unit! 3-/nch4 98"5!555 N 11!55: O 82.'0
8
. Ans&er4 D
-aterials cost 9055 % 81.'5: 8 2!0'5
Conversion costs 9055 % 5.' % 855: "'!555
Total 8$"!0'5
9
. Ans&er4 C
=alue-added labor4
Assemblers 0 personnel
Cabricators " personnel
Total 15 personnel
=alue-added activity ratio4 915 N 1.: 'K2 or ..'>
10
. Ans&er4 D
Theoretical velocity O Theoretical capacity N Available hours
9!55 units N 255 hours: O .0' units per hour
11
. Ans&er4 A
Actual =elocity4 Actual 8roduction N Available Iours
9!555 N 255: O .' units per hour
12
. Ans&er4 C
-C( O =alue Added Time N Throughput Time
$5 N 9$5 Q 12 Q $ Q 155: O 5.5
13
. Ans&er4 B
Dn-time Delivery 8ercentage O Dn-time Delivery N Total Delivery
9355 N 3$5: O 3'.0>