chapter 14 - production cycle
What is the economic order (production) quantity if the annual demand is 10,000 units, set up cost of placing each order is $3 and the holding cost per unit per year is $2?
$173.21
Typically, McDonald's produces menu items in advance of customer orders based on anticipated demand. In contrast, Burger King produces menu items only in response to customer orders. (1) Which system (MRP or lean manufacturing) does McDonald's use? (2) Which system (MRP or lean manufacturing) does Burger King use?
(1) Manufacturing Resource Planning (MRP-II) (2) Lean manufacturing
What are (4) types of potential costs in the production cycle?
(1) Preventive Costs (2) Inspection Costs (3) Internal Failure Costs (4) External Failure Costs
what are (3) controls over fixed assets?
(1) Proper authorization should be required for acquisition and disposal of fixed assets (2) Fixed asset records should show the location of each asset (3) Depreciation policies should be in writing
what are (2) types of standards that are commonly calculated in managerial accounting?
(1) price standards (2) quantity (usage) standards
Best place to spend your money (a) Preventive Costs (b) Inspection Costs (c) Internal Failure Costs (d) External Failure Costs
(a) Preventive Costs
Where you spend money to prevent problems from occurring (a) Preventive Costs (b) Inspection Costs (c) Internal Failure Costs (d) External Failure Costs
(a) Preventive Costs
Answers the question: How much should you pay for your materials and your labor? (a) Price standards (b) Quantity (usage) standards
(a) Price standards
Big companies use this heavily b/c it gives them some control over their costs. (a) Price standards (b) Quantity (usage) standards
(a) Price standards
Home construction companies have standard labor costs that they apply to sub-contractors such as framers, roofers, and electricians. (a) Price standards (b) Quantity (usage) standards
(a) Price standards
Hospitals have standard costs for food, laundry, and other items. (a) Price standards (b) Quantity (usage) standards
(a) Price standards
specify how much should be paid for each unit of the input. (a) Price standards (b) Quantity (usage) standards
(a) Price standards
Auto service centers like Firestone and Sears set labor time standards for the completion of work tasks. (a) Price standards (b) Quantity (usage) standards
(b) Quantity (usage) standards
Fast-food outlets such as McDonald's have standards for the quantity of meat going into a sandwich. (a) Price standards (b) Quantity (usage) standards
(b) Quantity (usage) standards
specify how much of an input should be used to make a product or provide a service (a) Price standards (b) Quantity (usage) standards
(b) Quantity (usage) standards
Machine breaks down - you lose time, call out maintenance crew to fix it (a) Preventive Costs (b) Inspection Costs (c) Internal Failure Costs (d) External Failure Costs
(c) Internal Failure Costs
Machine is messed up and is ruining raw materials (a) Preventive Costs (b) Inspection Costs (c) Internal Failure Costs (d) External Failure Costs
(c) Internal Failure Costs
Testing during production (a) Preventive Costs (b) Inspection Costs (c) Internal Failure Costs (d) External Failure Costs
(c) Internal Failure Costs
Where something is going wrong while you're producing it (you're taking a loss) (a) Preventive Costs (b) Inspection Costs (c) Internal Failure Costs (d) External Failure Costs
(c) Internal Failure Costs
While you're producing - you want to make sure the quality is there & things are operating correctly (a) Preventive Costs (b) Inspection Costs (c) Internal Failure Costs (d) External Failure Costs
(c) Internal Failure Costs
After you sell the product (a) Preventive Costs (b) Inspection Costs (c) Internal Failure Costs (d) External Failure Costs
(d) External Failure Costs
Warranty costs (a) Preventive Costs (b) Inspection Costs (c) Internal Failure Costs (d) External Failure Costs
(d) External Failure Costs
Car part recall (a) Preventive Costs (b) Inspection Costs (c) Internal Failure Costs (d) External Failure Costs
(d) External Failure Costs **Company must fix it - they have failed externally b/c the product has already been sold---it will cost the company money
A term used to refer to the use of robots and other IT techniques that are part of a the production process
CIM
What internal control procedure(s) would best prevent or detect the following problems? A production employee stole items from work-in-process inventory
Cameras, surprise checks as people leave the area
JE for disposition of property
DR. Accumulated Depreciation, Dr. Cash, DR. Loss (or CR. Gain), CR. Fixed Asset
What internal control procedure(s) would best prevent or detect the following problems? A production order was initiated for a product that was already overstocked in the company's warehouse.
Have a problem with their inventory system Need a better inventory tracking system - not sure which one (JIT, ERP, EOQ, etc.)- but if they're overstocking inventory then their system is not good (they have a weak inventory system).
What internal control procedure(s) would best prevent or detect the following problems? Overproduction of a slow-moving product resulted in excessive inventory that had to eventually be marked down and sold at a loss.
Problem with inventory system - they've got a product that isn't selling - maybe they need to move to a JIT system where you only make an item when its been ordered
What internal control procedure(s) would best prevent or detect the following problems? A production manager stole several expensive machines and covered up the loss by submitting a form to the accounting department indicating that the missing machines were obsolete and should be written off as worthless
Retirement work order - should have been authorized. Production manager shouldn't do that without appropriate paperwork.
What internal control procedure(s) would best prevent or detect the following problems? A production employee entered a materials requisition form into the system in order to steal $300 worth of parts from the raw materials storeroom.
Separation of duties - the production employee should not be entering request form materials; needs to be someone should be authorizing that who is above that person.
What internal control procedure(s) would best prevent or detect the following problems? A parts storeroom clerk issued parts in quantities 10% lower than those indicated on several materials requisitions and stole the excess quantities.
When you take something to the storage department - its been authorized by somebody (requisitioning it out of there) - whoever is taking that needs to get a receipt from what was taken and that needs to be matched up with what was ordered; needs to be a verification of documents between what was requested & what was filled
"benchmark for measuring performance"
a standard
Assembling a product is an example of a: a) Unit-level activity b) Batch level activity c) Product level activity d) Organization-sustaining activity
a) Unit-level activity **Every time you make a unit you're going to have to assemble it
Information found on the materials requisition form is based in part on information obtained from which other form? a) a bill of materials. b) a move ticket. c) a production order. d) a picking list.
a) a bill of materials.
The second step in the production cycle is planning and scheduling. One of the methods of production planning is referred to as push manufacturing. This method is also known as a) manufacturing resource planning (MRP). b) just-in-time manufacturing system (JIT). c) the economic order quantity (EOQ) system. d) ahead-of-time production implementation (ATPI).
a) manufacturing resource planning (MRP).
The bill of materials shows the __________ of each product component. a) part number and description b) quantity used c) quantity ordered d) both A and B
a) part number and description
The basic activities in the production cycle are a) product design, planning and scheduling, and operations. b) planning, scheduling, and requisitioning c) raw materials requisitioning, planning, and scheduling. d) Designing, ordering, and operations
a) product design, planning and scheduling, and operations.
'a costing method that is designed to provide managers with cost information for strategic and other decisions."
abc costing
a cost accounting method that assigns costs to each step or work center and then calculates the average cost of all products that pass through and then step or work center
activity-based costing
"any event that causes the consumption of overhead resources."
an activity
Which of the following is not a reasonable control for fixed assets? a) Proper authorization is required for acquisition and disposal of fixed assets b) Fully depreciated assets are immediately disposed of c) Fixed asset records show the location of each asset d) Depreciation policies are in writing
b) Fully depreciated assets are immediately disposed of **Fully depreciating an asset doesn't mean you get rid of it—could still be in use.
__________ are associated with testing to ensure that products meet quality standards. a) External failure costs b) Inspection costs c) Internal failure costs d) Prevention costs
b) Inspection costs
X represent testing to identify defective units before they are ready for sale. a) External failure costs b) Inspection costs c) Internal failure costs d) Prevention costs
b) Inspection costs *Testing is part of inspection**
An integral part of the production process is the use of raw materials. One way to enable an AIS to efficiently track and process information about raw materials used in production is to implement __________. a) a just-in-time inventory system b) bar coding c) a materials resources planning inventory system d) job-order costing
b) bar coding **by requiring suppliers to use barcodes - makes it easy to track raw materials once they are in your inventory
Job-time tickets are used to a) specify each production task. b) collect the time spent by a worker on a specific task. c) allocate machine costs. d) All of the above are correct.
b) collect the time spent by a worker on a specific task.
Which of the following is not a type of cost accounting system? a) activity-based costing b) just-in-time costing c) job order costing d) process costing
b) just-in-time costing
The second step in the production cycle is planning and scheduling. One of the methods of production planning is referred to as pull manufacturing. This method is also known as a) manufacturing resource planning (MRP). b) just-in-time manufacturing system (JIT). c) the economic order quantity (EOQ) system. d) ahead-of-time production implementation (ATPI).
b) just-in-time manufacturing system (JIT).
A __________ authorizes the transfer of raw goods needed for production from the storeroom to the production facilities. a) master production schedule b) materials requisition c) move ticket d) production order
b) materials requisition
a list of the raw materials used to create a product
bill of materials
The document that authorizes the removal of the necessary quantity of raw materials from storeroom to factory is referred to as a) a bill of materials. b) a production order. c) a materials requisition. d) a move ticket.
c) a materials requisition.
Activity-based costing (ABC) can refine and improve cost allocations using either job-order or process cost systems. There are three significant differences between ABC and traditional cost accounting approaches. An ABC system attempts to identify anything that has a cause-and-effect relationship on costs. This cause-and-effect relationship is known as a a) cost stimulator. b) overhead stimulator. c) cost driver. d) cost catalyst.
c) cost driver.
A __________ is used to document the subsequent relocation of materials through the factory for manufacturing in process. a) master production schedule b) materials requisition c) move ticket d) production order
c) move ticket
There are several basic activities in the production cycle. The step that may incorporate robots and computer-controlled machinery to achieve its goals is a) product design. b) planning and scheduling. c) production operations. d) cost accounting.
c) production operations.
If the daily demand is 40 units and the lead time is 12 days, the reorder point is a. 40 units b. 48 units c. 480 units d. none of the above
c. 480 units **no safety stock mentioned **when my volume goes down to 480 units - then I need to go ahead and reorder. How many am I going to order? 173.21 (as calculated in exercise above)
"used to refer to an activity measure that causes cost to occur."
cost driver
a factor that causes cost to change
cost driver
A job order cost accounting system would best fit the needs of a company that makes: a) Shoes and apparel. b) Paint. c) Cement. d) Custom machinery. e) Pencils and erasers.
d) Custom machinery.
Two basic types of cost accounting systems are: a) Job order costing and perpetual costing. b) Job order costing and customized product costing. c) Job order costing and customized service costing. d) Job order costing and process costing. e) Job order costing and periodic costing.
d) Job order costing and process costing.
There are several criticisms of traditional cost accounting systems. One criticism is that the traditional cost system uses a volume-driven base, such as direct labor or machine hours, to apply overhead to products. What is the drawback to the use of such a measurement in a traditional cost accounting system? a) The cost accountant may not fully understand how to track direct labor or machine hours. b) It is difficult for an AIS to incorporate such a measurement into its system. c) It is difficult for an ERP to incorporate such a measurement into its integrated system. d) Many overhead costs are incorrectly allocated to products since they do not vary with production volume.
d) Many overhead costs are incorrectly allocated to products since they do not vary with production volume.
__________ are incurred to ensure that products are created without defects the first time. a) External failure costs b) Inspection costs c) Internal failure costs d) Prevention costs
d) Prevention costs
There are various costs associated with quality control, or its absence in a production operation. Such information can help a company determine the effects of actions taken to improve production and identify areas of improvement. The cost of a product liability claim can be classified as a(n): a) prevention cost. b) inspection cost. c) internal failure cost. d) external failure cost.
d) external failure cost.
Objectives of the Fixed Asset System do not include a) authorizing the acquisition of fixed assets b) recording depreciation expense c) computing gain and/or loss on disposal of fixed assets d) fair value of all fixed assets
d) fair value of all fixed assets **we're not tracking assets at fair value**
The list which specifies the labor and machine requirements needed to manufacture a product is called the a) bill of materials. b) bill of lading. c) master production schedule. d) operations list.
d) operations list.
What document authorizes the manufacturing of a product? a) master production schedule b) materials requisition c) move ticket d) production order
d) production order
Direct labor must be tracked and accounted for as part of the production process. Traditionally, direct labor was tracked using __________ but an AIS enhancement is to use __________ to record and track direct labor costs. a) job-time tickets; coded identification cards b) move tickets; coded identification cards c) employee earnings records; job-time tickets d) time cards; electronic time entry terminals
d) time cards; electronic time entry terminals
when is a process costing system used?
in situations where a homogeneous product is produced on a continuous basis in large quantities.
What internal control procedure(s) would best prevent or detect the following problems? A production worker entering job-time data on an online terminal mistakenly posted the completion of operation 562 to production order 7569 instead of production order 7596
independent internal verification - need someone else to be double-checking that (i.e. independent checks on performance); closed-loop verification would show what part you're working on
"uniquely identifies each job (in a job-order costing system)"
job number
a cost accounting method that assigns costs to specific batches or production runs and is used when the product or service consists of uniquely identifiable items
job-order costing
type of cost accounting system that assigns costs to a particular production batch or job
job-order costing
a document that records labor costs associated with manufacturing a product
job-time ticket
"the number of days needed to deliver an item from start to delivery."
lead time
a production planning technique that is an extension of JIT
lean manufacturing
What internal control procedure(s) would best prevent or detect the following problems? A production worker entering job-time data on an online terminal mistakenly entered 3,000 instead of 300 in the "quantity-completed" field.
limit check, reasonableness check
A production planning technique that is an extension of MRP
manufacturing resource planning
a document that specifies how much of a finished good is to be produced during a specific period
master production schedule
a document used to authorize removal of raw materials from inventory
materials requisition
a document that tracks transfer of inventory from one work center to the other
move ticket
a document that lists the steps required to manufacture a product
operations list
a cost accounting method that assigns costs to products based on specific processes performed.
process costing
"a recurring set of business activities and related data processing operations associated with the manufacture of products."
production cycle
a document that authorizes the manufacture of a product
production order
What internal control procedure(s) would best prevent or detect the following problems? The quantity-on-hand balance for a key component shows a negative balance.
sign check
what is the objective of product design??
to design a product that strikes the optimal balance of meeting customer requirements for quality and minimizing production costs.
