BUSI 601

What is the first step in the decision making process?

Consider the strategic issues regarding the decision context.

Relevant (i.e., differential) cost analysis:

Considers all variable and fixed costs that change with each decision alternative.

The contribution by profit center (CPU) expands the contribution margin income statement by distinguishing:

Controllable, noncontrollable, and untraceable fixed costs.

A useful guide to solving profitability analysis problems with multiple products and multiple resource constraints is:

Corner point analysis.

which of the following are computer-based databases that include comprehensive information about the firm's cost drivers?

Cost tables.

Please fill in the missing component of the equation: Target cost = Competitive cost - _________

Desired profit.

1. Throughput margin is defined as sales less:

Direct material costs.

1. During the sales life cycle, which is an example of what happens during the introduction phase?

Sales rise slowly as customers become aware of the new product or service. Product variety is limited

During the sales life cycle, which is an example of what happens during the introduction phase?

Sales rise slowly as customers become aware of the new product or service. Product variety is limited.

Managers who are risk averse:

Seek to avoid options with high risk and would choose an option wi1h lower expected value if it had less risk.

Normal spoilage is defined as

Spoilage that occurs under efficient operations.

In deciding whether to drop or keep a product line, all of the following are relevant to the decision EXCEPT

The level of unavoidable fixed costs

If a firm is following the cost leadership strategy, and overhead accounts are complex, then the:

Traditional volume-based job costing will D.!11 usually provide the needed cost accuracy

1. According to the study guide, strategic planning should follow the advice found in Proverbs 3:7.

True

1. Luke 10:30-37 provides business managers with a guideline as to how they should conduct both their personal life, as well as their business life.

True

1. Opportunity costs are an important consideration for managers when deciding whether to accept special orders.

True

1. The applied overhead is compared to the actual overhead, with any discrepancy going into one of the following three accounts: goods in process inventory, finished goods inventory, or cost of goods sold.

True

1. When choosing whether to make, lease, or buy, a manager must consider the profits to be made under each consideration.

True

According to the study guide, one of the goals of managers should be to find a way to turn cost centers into profit centers

True

Which of the following is not one of the main methods of product design?

Value chain analysis.

__________ is used in target costing to reduce product cost by analyzing the trade-offs between different types of product functionality and total product costs

Value engineering

As a strategic issue budget slack could represent a

lower overall level of expected performance than is achievable

The theory of constraints (TOC) emphasizes the improvement of throughput by removing or reducing bottlenecks that slow the rate of:

output.

Which one of the following is a downstream cost?

warranty repair.

Lyman Company has the opportunity to increase annual credit sates $100,000 by selling to a new. riskier group of customers. The expenses of collecting credit sales are expected to be 15 percent of credit sales. The company's manufacturing and selling expenses are 70% of sales, and its effective tax rate is 40%. If Lyman should accept this opportunity, the company's after-tax profits would increase by:

1. Incremental collection fees = 0.15 " increase In annual credit sales = 0.15 " $100,000 = $15,000 2. Expected increase in after-tax profit= expected increase in pre-tax profit x (1 -1). where t =income tax rate= ('increased revenue· increased collection fees· increased manufacturing & selling expenses) x (1-0.40) = (($100,000- $15,000 - $70,000) x( 0.60] = $9,000

1. The principal-agent economic model applied to employment contracts includes two of the following management performance aspects:

Uncertainty and lack of observability.

1. Under job costing, factory overhead costs are assigned to products or services using labor or machine hours which are:.

Volume-based cost driver

When is depreciation NOT considered a sunk cost in decision-making?

When tax effects are considered

Operating at or near full capacity is particularly important for a firm considering:

Which product line is most profitable.

1. The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is:

Zero

Situations involving multiple products can be difficult to solve when there are limited resources. The best guide for decision in these cases is:

contribution margin per unit of scarce resource

The management accountant at Jang Manufacturing Co. collected the following data in preparation for a lifecycle analysis on one of its products, a leaf blower. Average Average An nual Change Change Over Over the Last Item This Year Last Year Four Years Annual sales $3,200.000 -2.4% + 3.5o/o Unit sales price 500 - 2.1% + 3.34!- Unit profit '100 - 10.0o/o + 2.0 Total Profit 700.000 -1.2% + 3.0%

decline

What is the fourth step in Theory of Constraint Analysis?

Add capacity to the constraint.

What accounting measurement tool is preferred when using profit centers in performance evaluation?

A contribution income statement

Which of the following is NOT a strategic issue related to Cost centers?

Dual allocation.

Which of the following is NOT an important aspect of management performance that affects the contracting relationship?

Independent SBU functions.

In the Principal-Agent model the four elements of the manager's behavior are all of the following except:

uncertainty.

Henry ford pioneer the use of

target costing

Standard costs are

Planned costs the firm should attain

Generally, a firm competing on differentiation will set a relatively high price at which stage of the products sales life cycle?

Product Introduction

Reduced time-lo-market, reduced expected service cost, and ease-of-manufacture are critical success factors at which stage of the cost life cycle?

Product design

1. Reduced time-to-market, reduced expected service cost, and ease-of-manufacture are critical success factors at which stage of the cost life cycle?

Product design.

1. Determination of the optimum short-term product mix needs to include an analysis of:

Production (that is, resource) constraints

3. Operating income reported under full costing will exceed operating income reported under variable costing for a given period if:

Production exceeds sales for that period.

Which of the following is NOT a revenue driver factor which affects sales volume for a manufacturing firm?

Productivity.

Which of the following illustrates how the level of operating profit changes over different levels of output/sales volume?

Profit-volume graph

1. What is an appropriate performance evaluation measure for the mature stage of a product's life cycle?

Profitability

Many firms use which one of the following terms to indicate the use of job costing in service industries?

Project costing.

1. From a strategic standpoint, profit centers tend to:

Provide incentive for coordination among managers of different functional units

"Outsourcing" a cost center is often done to:

Reduce cost and obta.in strategic focus.

Which of the following is NOT a behavioral or implementation issue regarding strategic decision-making?

Replacement of fixed costs with variable costs.

Which one of the following is an upstream cost?

Research and development.

1. Management accountants are frequently asked to analyze various decision situations including the following: (1) Alternative uses of plant space, to be considered in a make/buy decision. (2) Joint production costs incurred, to be considered in a sell-at-split-off versus a process-further decision. (3) Research and development costs incurred in prior months, to be considered in a product-introduction decision. (4) The cost of a special device that is necessary if a special order is accepted. (5) The cost of obsolete inventory to be considered in a keep-versus-disposal decision. The costs described in situations 2, 3, and 5 above are:

Sunk costs.

A situation in which a firm sets prices below variable cost is called:

predatory pricing

Determination of the optimum short-term product mix needs to include an analysis of:

production constraints

According to the study guide, strategic planning should follow the advice found In Proverbs 3:7.

true

Luke 10:30-37 provides business managers with a guideline as to how they should conduct both their personal life, as well as their business life.

true

Opportunity costs are an important consideration for managers when deciding whether to accept special orders.

true

The applied overhead is compared to the actual overhead, wi1h any discrepancy going into one of the following three accounts: goods in process inventory, finished goods inventory, or cost of goods sold.

true

When choosing whether to make. lease. or buy. a manager must consider the profits to be made under each consideration

true

The move from GAAP to IFRS in the U.S. should be least beneficial for those companies that:

use variable-cost-based profit center reporting.

Todweed Academy allocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools: School Tuition revenue LowerSchool $1,000,000 MiddleSchool $800,000 UpperSchool $1,200,000 Total $3,000,000 Marketing and administrative $1,200,000 Using revenue as an allocation base, the amount of costs allocated to the Middle School is calculated to be:

$320,000. $320,000 = $1,200,000 × ($800,000 ÷ $3,000,000)

T odweed Academy ailocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools: Lower ~ middle upper School Sclh sch Total Tuition revenue Sl,000.000 $800.000 Sl.200.000 $3,000,000 Market & admin $1,200,000 Using revenue as an allocation base, the amount of costs allocated to the Upper School is calculated to be:

$480,000 = $1,200,000 X ($1,200,000/$3,000,000) Ans is $480,000

The theory of constraints (TOC) approach is strategically important In dynamic markets because it leads to

A more responsive and flexible manufacturing environment

The value stream income statement provides the following information not usually contained in the contribution income statement

A separate accounting for the effect of inventory change on profit

Cost relevant to a make versus buy decision include variable manufacturing costs as well as

Avoidable fixed costs

For job costing in service industries. overhead costs are usually applied to jobs based on: A. Factory overhead. B. Direct labor-hours or dollars. C. Indirect labor. D. Indirect materials.

B. Direct labor-hours or dollars.

1. The Robinson-Patman Act, administered by the U.S. Federal Trade Commission, addresses pricing that could substantially damage the level of competition in an industry. This type of pricing is called:

Predatory pricing.

1. The six steps Ittner and Larcker propose for maximizing the value of nonfinancial measures when using a balanced scorecard include all of the following except:

Base actions on the data.

Manders Manufacturing Corporation uses the following model to determine its product mix for metal (M) and scrap metal (S): MaxZ= $30M + S70S Where: 3M+ 2S<- 15 2M+4S-<l8 The point where M = 2 and S = 3 would

Be a feasible point Explanation: 1. Corner points are as follows, (S, M) format a) Origin (i.e., S = 0, and M = 0). b) The M-intercept for constraint#1 is: M = 5, while the S-intercept is: S = 7.5. c) The $-intercept for constraint #2 is: M = 9, while the S intercept is: S = 4.5. d) The point where the two constraints cross is found by solving for the two constraints simultaneously. When we do this, we have M = 3, and S = 3. e) Thus, the other three oomer points are, in (S, M) format (0,5), (3,3), and (4.5,0). 2. The point (3, 2), that is (S, M) is within the feasible area. Since it is not a comer point. it is not an optimal solution.

Many firms are finding it is difficult to compete successfully on cost leadership or differentiation alone, and they must, in fact, compete on both:

Price and functionality.

1. _________________________ is an important first step in value engineering because it identifies critical consumer preferences that will define the product's desired functionality.

Consumer analysis

A model that has been used to better understand the key elements that contracts must have in order to achieve the desired objectives is

Principal-agent model.

1. According to the study guide, all strategy is essential for the success of a company.

False

1. Since estimates are not actual amounts and are used to approximate, there is not a need for the estimate to be fairly accurate.

False

1. Target costing is only utilized to determine the breakeven amount.

False

1. The Bible does not speak directly to financial decisions.

False

An example of an industry with relatively high downstream costs is:

Fashion apparel manufacturing.

2. A company's operating income recently increased by 30% while its inventory increased in a given year. Which of the following accounting methods would be most likely to produce the favorable income results?

Full costing.

Which of the following is a common type of value engineering in which the performance and cost of each major function or feature of the product is examined?

Functional analysis

_______________ is a method in which each element of an existing product is examined for its cost and value adding features.

Functional analysis

1. Which of the following is a common type of value engineering in which the performance and cost of each major function or feature of the product is examined?

Functional analysis.

Which of the following is NOT a type of Strategic Business Unit?

Growth center.

Committed or sunk costs are generally:

In the past.

Which one of the following is not an order-filling cost?

Inspection

Which stage of the product life cycle is characterized by little competition and slowly increasing sales?

Introduction.

Southern Company packages and sells nuts in cans. Pecans, cashews, Brazil nuts, hazelnuts, and peanuts are packaged individually as well in combinations and mixtures. Southern wants to package the nuts so that it can maximize its operating profit while considering market demand. In addition, there are limited supplies for some types of nuts. The technique that Southern should employ to address this decision problem is:

Linear programming

__________ is equal to processing time divided by total cycle time.

Manufacturing cycle efficiency (MCE)

The amount of time between receipt of a customer order and the delivery of the product to the customer is called:

Manufacturing cycle time

Which of the following industries is more suitable for using a job costing system?

Medical clinics.

David Corporation manufactures a single product that has a cost of $250. The company uses a 60% markup on manufacturing cost to arrive al a selling price of $400, which results in a price that is higher than that of the leading competitors. If David adopts the approach known as target costing, the company will first

Obtain a better understanding of the competitors' prices

The value chain analysis in make-lease-buy decisions often leads a firm to make use of:

Outsourcing.

1. Which one of the following is the amount of factory overhead applied that exceeds the actual factory overhead cost?

Overapplied overhead.

According to the study guide, all strategy is essential for the success of a company.

false

Since estimates are not actual amounts and are used to approximate, there is not a need for the estimate to be fairly accurate.

false

Target costing Is only utilized to determine the break even amount

false

The Bible does nol speak directly to financial decisions.

false

Team-based management is a type of management control system:

formal system at the team level.

employee morale and social responsibility represent two examples of

qualitative decision factors

The main concept of the balanced scorecard is that, to evaluate the SBUs progress to strategic success, an organization:

should use multiple measures for a comprehensive evaluation of performance.

a time ticket

shows the time an employee worked on each job, the pay rate and the total cost chargeable to each job

Henry Ford was an early pioneer in the use of:

target costing.

Value stream accounting reports the performance for groups of products in a form of:

the contribution income statement.

Although a retail or service company may use either a cost center or a profit center for performance evaluation, a not-for-profit organization is more likely to use be a cost center because:

the organization is likely to focus on managing costs so as not to exceed revenues.

The decision to keep or drop products or services involves strategic consideration of all the following except:

total variable costs

According to the study guide, one of the goals of managers should be to find a way to tum cost centers into profit centers.

true