Managerial Exam 1

1. Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. 2. Should Creighton implement the new quality program?

Requirement 1. Classify each item as a prevention​ cost, an appraisal​ cost, an internal failure​ cost, or an external failure cost. Appraisal Strength-testing one item from each batch of panels Prevention Training employees in TQM Prevention Training suppliers in TQM Prevention Identifying preferred suppliers who commit to on-time delivery of perfect quality materials External failure Avoid lost profits from lost sales due to disappointed customers Internal failure Avoid rework and spoilage Appraisal Avoid inspection of raw materials External failure Avoid warranty costs Requirement 2. Should Creighton implement the new quality​ program? Give your reason. Creighton should implement the new quality program. The program would save the company $51,000

Each of the scenarios to follow describes some cost item for organizations in recent years. For each​ scenario, identify which function of the value chain that cost would represent​ (R&D, Design,​ Purchasing/Producing, Marketing,​ Distributing, or Customer​ Service.) ​Note: The companies and products used in this exercise are real companies with a strong sustainable practices commitment.

a. In recent​ years, the U.S. National Park Service approved the use of an erosion control system from​ GeoHay® for a roadway construction project in the Great Smoky Mountains National Park.​ GeoHay® erosion and sediment control products are produced from recycled carpet fibers. The cost of these erosion and sediment control products would fall into which function in the value​ chain? Purchasing/Producing b. Ford Motor​ Company's Rouge Center in​ Dearborn, Michigan, has a​ "living roof" on the Dearborn Truck Plant final assembly building. It is the largest living roof in the​ world, encompassing 10.4 acres. The living roof is made from living​ grass, and its primary purpose is to collect and filter rainfall as part of a natural stormwater management system. It also provides cooler surroundings and offers a longer roof life than a traditional roof. The cost of promoting the​ company's products and its sustainability efforts would fall into which function in the value​ chain? Marketing c. Nike​ Products, an athletic apparel and shoe​ manufacturer, developed the Environmental Apparel Design Tool over a period of seven years. The Environmental Apparel Design Tool helps apparel and shoe designers to make​ real-time choices that decrease the environmental impact of their work. With the​ tool, the designers can see the potential waste resulting from their designs and the amount of environmentally preferred materials used by their designs. When designers make changes to the preliminary product​ design, they can see instantly the effect of those changes on waste and input usage. The​ $6 million investment used to develop the Environmental Apparel Design Tool would fall into which function in the value​ chain? Design d. GreenShipping Superscript TM is a service that companies can use to purchase carbon offsets for the carbon generated by shipments to customers. Any shipments made with​ UPS, FedEx, or USPS can be tracked. The GreenShipping Superscript TM calculator uses​ weight, distance​ traveled, and mode of transport to calculate the carbon generated by that shipment. A carbon offset is then purchased so that the shipment becomes carbon neutral. The carbon offset helps to fund the development of renewable energy sources. The cost of these carbon offsets to the company making the shipment to the customer would fall into which function in the value​ chain? Distributing e. The Red Wing Shoe Company manufactures work boots. The company has a philosophy that products should be​ repaired, not thrown away. After the​ 12-month warranty has expired on Red Wing​ boots, the company offers free​ oiling, free​ laces, low-cost replacement​ insoles, and​ low-cost hardware repairs. The cost of operating this shoe repair service would fall into which function in the value​ chain? Customer Service f. ​Nyloboard® produces decking materials made from recycled carpet. The cost of the research into how to create​ Nyloboard® from recycled carpet would fall into which function in the value​ chain? R&D

Which of the following is​ true? A. ABM refers to using​ activity-based cost information to make decisions. B. ​Value-added activities are also referred to as waste activities. C. The goal of ABM is to decrease the amount of​ value-added activities. D. ABC is only applicable to manufacturers.

A. ABM refers to using​ activity-based cost information to make decisions.

Which of the following management responsibilities often involves evaluating the results of operations against the​ budget? A. Controlling B. Directing C. Planning D. None of the above

A. Controlling

Which of the following is true​? A. Fixed costs stay constant in total over a wide range of activity levels. B. The average cost per unit can be used for predicting total costs at many different output levels. C. Direct materials are considered to be fixed costs. D. Manufacturing overhead is composed of only variable costs.

A. Fixed costs stay constant in total over a wide range of activity levels.

Which of the following is false​? A. Job cost information is not useful for assessing the profitability of different products. B. Direct costing focuses on only the direct costs found on the job cost record. C. ​Non-manufacturing costs can be assigned to jobs only for internal decision​ making, never for external financial reporting. D. A​ cost-plus price is determined by adding a markup to the cost.

A. Job cost information is not useful for assessing the profitability of different products.

Which of the following types of companies will always have the Cost of Goods Sold account on their income​ statements? A. Merchandising and manufacturing companies B. ​Service, merchandising, and manufacturing companies C. Service and merchandising companies D. Service and manufacturing companies

A. Merchandising and manufacturing companies

Which of the following is not part of manufacturing​ overhead? A. Period​ costs, such as depreciation on office computers B. Indirect​ labor, such as plant forklift​ operators' wages C. Indirect​ materials, such as machine lubricants D. Other indirect manufacturing​ costs, such as plant utilities

A. Period​ costs, such as depreciation on office computers

Which of the following is false​? A. The triple bottom line focuses on three​ items: net​ income, net​ assets, and return on investment. B. Lean operations is a philosophy and business strategy of operating without waste. C. Globalization has increased the necessity for more detailed and accurate cost information. D. ERP systems integrate information from all company functions into a centralized data warehouse.

A. The triple bottom line focuses on three​ items: net​ income, net​ assets, and return on investment.

Cost distortion is more likely to occur when A. departments incur different types of overhead and the products or jobs use the departments to a different extent. B. all products require the same amount and type of processing activities. C. a company manufactures one type of product. D. a company uses departmental overhead rates rather than a single plantwide overhead rate.

A. departments incur different types of overhead and the products or jobs use the departments to a different extent.

Period costs are often referred to as A. operating expenses. B. product costs. C. manufacturing expenses. D. direct costs.

A. operating expenses.

Activities incurred regardless of how many​ units, batches, or products are produced are called​ _____ activities. A. ​facility-level B. ​batch-level C. ​unit-level D. ​product-level

A. ​facility-level

Which of the following professional standards requires management accountants to continually develop their knowledge and​ skills? A. Confidentiality B. Competence C. Integrity D. Credibility

B. Competence

Which of the following corporate positions is responsible for general financial​ accounting, managerial​ accounting, and tax​ reporting? A. Treasurer B. Controller C. Internal audit D. Chief Operating Officer​ (COO)

B. Controller

Which of the following is a calculated​ amount, rather than a general ledger​ account? A. Finished goods inventory B. Cost of goods manufactured C. Cost of goods sold D. Sales revenue

B. Cost of goods manufactured

The first step in computing and using ABC is which of the​ following? A. Allocating some MOH to each job B. Identifying the​ company's primary activities C. Selecting appropriate allocation bases D. Calculating activity cost allocation rates

B. Identifying the​ company's primary activities

Which of the following types of companies would have work in process​ inventory? A. Merchandising B. Manufacturing C. Service D. All of the above

B. Manufacturing

Which of the following is true when using job costing at a service​ firm? A. Professional labor cost would be considered an indirect cost of serving the client. B. Office rent would be considered a direct cost of serving the client. C. Both direct and indirect costs are assigned to client jobs. D. The professional billing rate consists solely of the​ professionals' labor cost.

C. Both direct and indirect costs are assigned to client jobs.

Concerning lean​ operations, which of the following is false​? A. Can leave companies vulnerable to​ supply-chain disruptions B. Can be found in all​ sectors, not just manufacturing C. Focus on internal and external waste D. Are quickly becoming the dominant business paradigm

C. Focus on internal and external waste

For which of the following would job costing not be​ appropriate? A. Electrician B. Law firm C. Manufacturer of​ mass-produced carbonated beverages D. Manufacturer of​ custom-ordered production equipment

C. Manufacturer of​ mass-produced carbonated beverages

Which of the following is false​? A. Uncontrollable costs are costs over which the company has little or no control in the short run. B. Sunk costs are costs that have already been incurred. C. Sunk costs are generally relevant to decisions. D. The difference in cost between two alternatives is known as a differential cost.

C. Sunk costs are generally relevant to decisions.

Which of the following is not one of the costs of quality​ categories? A. External failure costs B. Prevention costs C. Transportation costs D. Appraisal costs

C. Transportation costs

Which of the following would be considered an external failure​ cost? A. Cost to train personnel B. Rework costs C. Warranty costs D. Cost of inspecting incoming raw materials

C. Warranty costs

The amount of manufacturing overhead recorded on a job cost record for a particular job is found by A. tracing manufacturing overhead to the job. B. either tracing or allocating manufacturing overhead costs​ (management's choice). C. allocating manufacturing overhead to the job. D. None of the answers listed is correct.

C. allocating manufacturing overhead to the job.

A cost that can be traced to a cost object is known as​ a(n) A. product cost. B. period cost. C. direct cost. D. indirect cost.

C. direct cost.

The potential benefits of​ ABC/ABM are generally higher for companies that A. produce one product. B. have low manufacturing overhead costs. C. produce high volumes of some products and low volumes of other products. D. are in noncompetitive markets.

C. produce high volumes of some products and low volumes of other products.

Which of the following requires the​ company's CEO and CFO to assume responsibility for the​ company's financial statements and​ disclosures? A. Institute of Management Accountants​ (IMA) B. Enterprise Resource Planning​ (ERP) C. ​Sarbanes-Oxley Act of 2002​ (SOX) D. Lean Operations

C. ​Sarbanes-Oxley Act of 2002​ (SOX)

Which of the following is not an activity in the value​ chain? A. Marketing B. Design C. Customer Service D. Administration

D. Administration

Of the following​ skills, which are needed by​ today's management​ accountants? A. Decision analysis B. Strategic thinking C. Cost management D. All of the above

D. All of the above

Which of the following professional standards requires management accountants to not disclose private information about their​ organizations? A. Credibility B. Integrity C. Competence D. Confidentiality

D. Confidentiality

Which of the following organizations is the professional association specifically for management​ accountants? A. IFRS B. AICPA C. FASB D. IMA

D. IMA

Which of the following is not one of the​ "eight wastes" included in the acronym​ DOWNTIME? A. Transportation B. Inventory C. Overproduction D. Neglect

D. Neglect

Whenever direct​ material, direct​ labor, and manufacturing overhead are recorded on a job cost​ record, an associated journal entry is made to debit which of the following​ accounts? A. Finished Goods Inventory B. Sales Revenue C. Cost of Goods Sold D. Work in Process Inventory

D. Work in Process Inventory

All of the following are business trends affecting management accounting except​: A. sustainability. B. big data. C. shifting economy. D. all of the above.

D. all of the above.

Lean operations are generally characterized by A. production in​ self-contained cells. B. employee empowerment. C. JIT inventory systems. D. all of the listed answers.

D. all of the listed answers.

Conversion costs consist of A. direct​ materials, direct​ labor, and manufacturing overhead. B. direct materials and manufacturing overhead. C. direct materials and direct labor. D. direct labor and manufacturing overhead.

D. direct labor and manufacturing overhead.

Managerial accounting differs from financial accounting in that managerial accounting A. is used primarily by external decision makers. B. is required by Generally Accepted Accounting Principles​ (GAAP). C. tends to report on the company as a whole rather than segments of the company. D. emphasizes data relevance over data objectivity.

D. emphasizes data relevance over data objectivity.

Categorize each of the following characteristics as being either more representative of a traditional organization or a lean organization.

1. High quality is stressed in every aspect of production. Lean organization 2. Manufacturing plants tend to group like machinery together in different parts of the plant. Traditional organization 3. Setup times are longer. Traditional organization 4. Strive to maintain low inventory levels. Lean organization 5. Setup times are shorter. Lean organization 6. Produce in smaller batches. Lean organization 7. Manufacturing plants tend to be organized with​ self-contained production cells. Lean organization 8. Quality tends to be​ "inspect-in" rather than​ "build-in." Traditional organization 9. Maintain greater quantities of raw​ materials, work in​ process, and finished goods inventories. Traditional organization 10. Emphasis is placed on shortening manufacturing cycle times. Lean organization 11. Produce in larger batches. Traditional organization 12. Cycle time tends to be longer. Traditional organization

For each of the following users of financial accounting information and managerial accounting​ information, specify whether the user would primarily use financial accounting information or managerial accounting information or both.

1. Reporter from The Wall Street Journal Financial accounting information 2. Regional division managers Managerial accounting information 3. Potential investors Financial accounting information 4. Bookkeeping Department Financial accounting information 5. Manager of the Service Department Managerial accounting information 6. Wall Street analyst Financial accounting information 7. Division controller Both financial and managerial accounting information 8. State tax agency auditor Financial accounting information 9. External auditor​ (public accounting​ firm) Financial accounting information 10. Loan officer at the​ company's bank Financial accounting information 11. Board of directors Both financial and managerial accounting information 12. Internal auditor Both financial and managerial accounting information 13. SEC examiner Financial accounting information 14. Current stockholders Financial accounting information

Complete the following statements with one of the terms listed here. You may use a term more than​ once, and some terms may not be used at all.

a. Information on a company's past performance is provided to external parties by financial accounting . b. Managerial accounting systems are chosen by comparing the costs versus the benefits of the system and are not restricted by GAAP (or International Financial Reporting Standards, IFRS, in the case of companies headquartered in many countries outside of the United States). c. Managerial accounting systems report on various segments or business units of the company. d. Financial accounting develops reports for external parties such as creditors and shareholders . e. When managers evaluate the company's performance compared to the plan, they are performing the controlling role of management. f. CPAs audit the financial accounting statements of public companies. g. Companies must follow GAAP (or International Financial Reporting Standards, IRFS, in the case of companies headquartered in many countries outside of the United States) in their financial accounting systems. h. Choosing goals and the means to achieve them is the planning function of management. i. Decision makers inside a company are the managers .

Kirkland Furniture is a manufacturing plant that makes a variety of​ tables, benches, and other furniture. Indicate which inventory​ account(s) would be affected by the following actions that occur at​ Kirkland's in the process of manufacturing its standard picnic tables. Also indicate whether the inventory account would increase or decrease as a result of the action.

a. Lumber is delivered by the supplier to the plant, where it is stored in a materials storeroom until needed. Raw Materials Inventory Increase b. Lumber is requisitioned from the storeroom to be used for tops and seats for the tables. Raw Materials Inventory Decrease WIP Inventory Increase c. Factory workers cut the lumber for the tables. WIP Inventory Increase d. Five tables are completed and moved to the inventory storage area to await sale. WIP Inventory Decrease Finished Goods Inventory Increase e. A customer purchases a table and takes it home. Finished Goods Inventory Decrease

Categorize each of the following activities as to which management responsibility it​ fulfills: planning,​ directing, or controlling. Some activities may fulfill more than one responsibility. ​(Select an​ "X" in the box if the management responsibility is fulfilled. If the management responsibility is not​ fulfilled, leave the box​ empty.)

a. Management decides to increase sales growth by 20% next year. -planning b. Management analyzes the impact of a recent advertising campaign by comparing budgeted sales to actual sales. -controlling c. Management reviews hourly sales reports to determine the level of staffing needed to staff the customer service desk. -directing d. Management uses information on product costs to determine sales prices. - directing e. To lower production costs, management moves production to China. -directing -controlling

Complete the following statements with one of the terms listed here. You may use a term more than​ once, and some terms may not be used at all.

a. Manufacturing companies report three types of inventory on the balance sheet. b. Inventory (merchandise) for a company such as Best Buy​ (consumer electronics) includes all of the costs necessary to purchase products and get them onto the store shelves. c. Most​ for-profit organizations can be described as being in one​ (or more) of three​ categories: manufacturing companies , merchandising companies , and service companies . d. Work in process inventory is composed of goods partially through the manufacturing process​ (not finished​ yet). e. Forever​ 21, Target, and​ Kohl's are all examples of merchandising companies . f. Service companies typically do not have an inventory account. g. Johnson​ & Johnson, a personal care products​ manufacturer, converts raw materials inventory into finished products. h. A law​ office, an advertising​ agency, and a hospital are all examples of service companies . i. Wholesalers buy products in bulk from​ producers, marks them​ up, and resell to retailers.

For each of the following​ companies, specify whether the company would be more likely to use job costing or process costing.

a. Yacht builder Job costing b. Cereal manufacturer Process costing c. Landscaper Job costing d. Pet food processor Process costing e. Wallpaper installation service Job costing f. Aircraft builder Job costing g. Hospital Job costing h. Cement plant Process costing i. Dentist Job costing j. Advertising agency Job costing k. ​Custom-home builder Job costing l. Oil refinery Process costing m. House painter Job costing n. Computer chip manufacturer Process costing