IE 475 Midterm 2 Study Guide

What is the first step of target costing?

Determine the suggested (market) selling price.

Throughput margin is defined as sales less:

Direct material costs.

What type of activity is plant maintenance?

Facility-level

Costs at the unit-level of activity should be allocated to products using cost drivers that are:

Volume-related.

Volume-based overhead rates may cause undesirable strategic effects such as:

- Ineffective management of operations for process improvement. - Incorrect decisions. - Unprofitable cross-subsidization of products.

Which cost pools are used to classify costs under activity-based costing?

- unit - batch - product - facility ABC uses all cost pools

Target costing steps in order

1. Determine the market price. 2. Determine the desired profit. 3. Calculate the target cost at market price less desired profit. 4. Use value engineering to identify ways to reduce product cost. 5. Use kaizen costing and operational control to reduce costs.

Sales life cycle

1. Introduction 2. Growth 3. Maturity 4. Decline 5. Withdrawal

Place the phases of the cost life cycle (value chain) in the correct order from upstream to downstream activities.

1. R & D 2. Design 3. Marketing & Distribution 4. Customer Service

What are the 2 main steps of ABC?

1. identifies costs with activities that consume resources 2. assigns resource costs to cost objects

Which of the following is not true regarding activity-based costing (ABC) systems?

ABC identifies more costs as indirect costs than do traditional volume-based systems.

Many firms choose to achieve target cost through redesign of the product or service because they recognize that design decisions:

Account for much of the total product life cycle costs.

In an activity-based costing system, overhead costs are divided into separate:

Activity cost pools.

The management of activities to improve the value received by the customer and the competitiveness of the organization is:

Activity-based management.

A measure of frequency and intensity of demands placed on activities by cost objects is:

An activity consumption cost driver.

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

A more responsive and flexible manufacturing environment.

A measure of the quantity of resources consumed by an activity is:

A resource consumption cost driver.

Target cost can be defined as:

Competitive price - desired profit.

Procurement costs such as costs of placing orders for materials and paying suppliers are usually classified as:

Batch-level costs.

Activity-based costing (ABC) and the theory of constraints (TOC) are viewed as methods that are:

Complementary.

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

Consumer analysis

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

Cost tables.

Which of the following is a benefit of activity-based costing?

Facilitate better product pricing decisions.

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 a method of reducing cost by identifying parts in different products that are common and interchangeable?

Group technology.

ABC costing helps an organization implement its strategy through all of the following means except:

Helping improve cycle time.

The goals of coordinating manufacturing processes, reducing the amount of inventory, and improving overall productivity is particularly important in a:

Just-in-time system.

Which of the following would be the most appropriate cost driver to allocate factory electricity costs to products?

Machine hours.

Generally, firms will price a product more competitively at which stages of the product's sales life cycle?

Maturity and Decline.

During which stage of the sales life cycle of a product do sales continue to increase but at a decreasing rate, and competition tends to focus on cost?

Maturity.

Elimination of low-value-added activities in a firm should:

Not affect customer value.

Which of the following would likely be the most appropriate cost driver of electric power used by machines?

Number of machine hours.

Which of the following is a batch-level cost driver?

Number of orders.

Which of the following is most likely to be the cost driver for the packaging and shipping activity?

Number of orders.

In regard to selling activities, which one of the following would not be a cost driver for selling expense?

Number of production runs.

Which of the following would likely be the most appropriate cost driver to allocate machine set-up costs to products?

Number of production runs.

A type of strategic pricing based on analytical methods is used to:

Optimally determine the best price.

Overhead costs are allocated to cost objects in an activity-based costing system in the following manner:

Overhead costs are traced to activities, then costs are traced to products.

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.

An activity that is performed to support the production of a new custom-order product is a:

Product-level activity.

Engineering change orders, maintenance of equipment used in manufacturing, and product design costs are examples of:

Product-level costs.

Which one of the following is not a unit-level cost driver?

Production orders.

The major limitation of volume-based costing systems is the use of volume-based:

Rates.

The theory of constraints (TOC) emphasizes what?

Removing bottlenecks from the production process.

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

Sales continue to increase but at a decreasing rate. The number of competitors and product variety decline.

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

Sales increase rapidly along with an increase in product variety.

The sequence of phases in the product or service's life in the market - from the introduction of the product or service to the growth in sales and finally maturity, decline, and withdrawal from the market is the:

Sales life cycle.

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.

Successful activity-based costing (ABC) implementation depends upon the firm:

Starting with a relatively simple system.

When comparing Activity-based costing (ABC) and the Theory of Constraints (TOC), the approach each method takes toward profitability analysis is:

TOC takes a short-term approach and ABC takes a long-term approach.

the speed at which units must be manufactured to meet customer demand

Takt time

In performing activity analysis during the design of an activity-based costing (ABC) system, the management accountant studies:

The resources, activities, and cost drivers in the operation.

Using a volume-based overhead rate based on machine hours to assign manufacturing overhead to a product line that uses relatively few machine hours is likely to:

Underapply overhead to the product line.

A firm has many products, some produced in an automated production process and some produced in a manual production process. Using direct labor hours to assign manufacturing overhead to a product manufactured with a highly automated process is likely to:

Understate overhead of the product.

A company using a volume-based overhead assignment (allocation) method will tend to:

Understate the cost of low volume products.

In an organization that makes furniture, which of the following is a high value-added activity?

Using direct materials in production.

Operations supporting activities such as: - closing the books each month - providing security for the plant - factory property taxes and insurance

facility level activities

What type of activity is plant management salaries?

facility level activity

What type of activity is Processing?

high-value activity

Henry Ford was an early pioneer in the use of:

target costing.

The examination of the efficiency of each of a firm's activities is:

Activity analysis.

throughput margin =

price less materials cost