Chapter 19 ACCT 7080 Mr.Turner

value engineering

As part of the target costing process, design engineers often use ___ ____ to determine the least costly combination of resources required to create products desired by customers.

400 Reason: $520 = 30% Markup Above Target Cost + Target Cost; thus, Target Cost = $520/1.30 = $400.

Assume Gamm's, a retail establishment, wants to capture a 20 percent share of its local evening gown market. In order to capture that share, it has determined that the average selling price of an evening gown should be no more than $520. Gamm's currently requires a 30 percent markup on all clothing lines. If it wishes to maintain that markup percentage, what is its average target cost for an evening gown?

Target price$32.50 Target profit$4.50 Target cost$28.00

Assume you've just started a new business to manufacture Fry-Plate, a new solar-powered cooking pan for camping. Your business analyst tells you that in the long run Fry-Plate will sell for $32.50 because, after a few years pass, similar products will be introduced by your competitors. Assume that, in the long run, you want to earn $4.50 on each unit of Fry-Plate sold. What is the target price? What is the target profit? What is the target cost? (Round your answers to 2 decimal places.)

80,000 math: 200k*(25%+10%+5%)=80k

Harter Manufacturing uses activity-based management to reduce or eliminate non-value-added activities from its value chain. The company's Accounting & Finance Department (A&F) has an annual budget of of $5 million. Of this amount, $2 million is assigned to the labor cost pool. There are 3 activities associated with the labor cost pool, and each is responsible for driving the following amounts of the pool's total cost: (1) 30% are driven by transaction activities; (2) 60% are driven by financial reporting activities; and (3) 10% are driven by budgeting activities. The A&F Department has an opportunity to outsource much of its information technology services at an annual cost of $200,000 per year. The only cost savings that would result relate to A&F's labor cost pool. Specifically, outsourcing would reduce transaction activities by 25%, financial reporting activities by 10%, and budgeting activities by 5%. The benefit of labor cost savings is expected to exceed the $200,000 annual outsourcing fee by $

capitalized expensed

IFRS requires that some research and development expenditures be ____ whereas U.S. GAAP requires these activities to be ____.

a. Grocery store = Storing large amounts of inventory on hand. b. Bank = Improper recording of customer transactions. c. Hotel = Long waiting line to check in to the hotel.

Identify a non-value-added activity at a grocery store, a bank, and a hotel.

12 math: 30*40% = 12

McNamer Corporation has a manufacturing efficiency ratio of 40%, based on its cycle time of 30 minutes. The company's value-added time is ____ minutes.

input resources used for a given level of output achieved.

Productivity is usually measured by comparing

False

Target cost equals target price plus profit margin.

price. functionality. quality.

Target costing begins by analyzing customer desires and needs as they relate to a product's

The creation and design of products that will provide adequate profits.

Target costing is directed toward:

activity-based management. target costing. total quality management. just-in-time procedures.

Techniques discussed in this chapter that organizations commonly use to manage costs throughout the value chain include

process costing

Techniques to manage costs in the value chain include all of the following except:

activity based costing

The practice of assigning costs to products using multiple cost-driving activities is referred to as ___-____-____.

To reduce and eliminate non-value-added activities.

The primary objective of activity-based management is:

Inspections of incoming supplies and materials.

Which of the following is an example of an appraisal cost?

Experiencing lost sales.

Which of the following is an example of an external failure cost?

warranty costs

Which of the following is not a prevention cost?

target costs

Which of the following is not an example of the cost of quality?

compute internal failure costs

Which of the following is not one of the basic procedures related to activity-based costing?

The target costing process requires a cross-functional team approach. An understanding of production processes is a critical element of the target costing process. Target costing requires an emphasis on a product's functionality. Target costing involves the entire value chain.

Which of the following statements about target costing is/are true?

R&D activities are expensed under U.S. GAAP but are often capitalized under IFRS.

Which of the following statements is/are true about accounting for research and development activities (R&D) under U.S. GAAP and IFRS?

manufacturing efficiency ratio

A widely used measure of efficiency in a just-in-time environment is the __ ____ ____.

quality cost

Accounting systems in JIT companies measure ____,____, and cycle times.

non value added

Across the value chain, ___-___ -___ activities do not contribute to the desirability of a product or service in the eyes of the customer.

value added activities

Across the value chain, ___-___-___ add to a product's or service's desirability in the eyes of the consumer.

False

Activities related to internal failure such as rework, scrap, and engineering change orders are value-added activities since they cannot be eliminated without increasing costs elsewhere in the value chain.

periods

Activity-based cost information is important for controlling the production chain's production costs as well as many other costs, such as customer service, that are matched to time

total quality management

Companies that compete globally on quality and cost should have a well-developed ___ ____ ___ process.

customer

Concerns of the ____ ultimately drive value and non-value-added activities.

benchmark

Conducting industry studies and engaging in competitive bidding activities are examples of how companies that use activity-based management collect external _____ information for comparative purposes.

redesigning production processes. outsourcing the maintenance and repair of production equipment. using higher-quality direct materials to eliminate scrap and waste.

Examples of activity-based management initiatives to reduce or eliminate non-value-added activities may include

Training chefs and wait staff = Prevention Quality control checking of purchased produce and meats = Appraisals Ruined meal because of spoiled produce = Internal failure Meal returned by customer = External failure

Following are some of the types of costs that a restaurant incurs in each of the four cost-of-quality categories. Match the cost with respective categories.

External and internal failure costs decrease. Prevention and appraisal costs increase.

In a cost of quality graph, what happens as the quality of production increases?

total quality management

In a quality cost report, TQM is an abbreviation for costs associated with ____ ____ ___ throughout the value chain.

analyzing cost drivers to identify those that are non-value-added activities. collecting external benchmark information. managing activities to reduce or eliminate those that are non-value-added.

In addition to performing the tasks associated with operating an activity-based costing system, activity-based management also involves

supply push

In contrast to just-in-time systems, manufacturing environments have historically been ___ ___ systems in which companies simply produced as many goods as possible.

value chain

In target costing, the entire ___ ___ is involved in driving down costs without sacrificing customer needs.

marketing and distribution customer service R&D and design suppliers and production

In which of the following stages of the value chain do value-added activities occur?

False

International Financial Reporting Standards (IFRS) requires that most research and development (R&D) activities be expensed immediately.

demand-pull manufacturing

Just-in-time manufacturing systems are also known as:

demand pull

Just-in-time systems are sometimes referred to as ___ ____ manufacturing because production activity is totally driven by customer demand.

False

Non-value-added activities are those that add to a product's desirability.

defects

One widely used measure of production quality in JIT environments is _____ per million units produced.

cost savings. reductions in time devoted to inspecting materials. quality improvement.

Paying slightly higher costs for quality materials often results in

increase its non-value-added costs by $10,000. Reason: The $140,000 current cost of the function ($200,000 × 70% = $140,000) is $10,000 less than the $150,000 outsourcing cost. Even if these employees are not retained, someone must perform the other functions that currently occupy 30% of their time.

Rungren Corporation uses activity-based management to reduce non-value-added activities from its value chain. The company's Accounting Department is considering outsourcing its planning function to an independent consulting firm for $150,000 per year. Currently, 3 full-time Accounting Department employees spend 70% of their time engaged in financial planning activities. These employees earn a total of $200,000 annually. If the Accounting Department outsources its financial planning function, it will

$67.50 Explanation : $90 - ($90 × 0.25) = $67.50

Summit Products, Incorporated is interested in producing and selling an improved widget. Market research indicates that customers would be willing to pay $90 for such a widget and that 50,000 units could be sold each year at this price. The current cost to produce the widget is estimated to be $65.If Summit Products requires a 25% return on sales to undertake production, what is the target cost for the new widget?

$34,500 Explanation $15,000 + $7,000 + $12,500 = $34,500

The Abrams Corporation incurred the following quality costs during the year: Inspections$ 32,000 Training$ 15,000 Quality planning$ 7,000 Maintenance$ 12,500 Rework$ 3,000 Warranty$ 7,500 Testing of equipment$ 6,300 Scrap$ 8,000 Lost sales$ 22,250 Downtime$ 8,700 Repairs$ 5,500 What are the total prevention costs for the Abrams Corporation?

value chain

The ___ ____ is a set of activities and resources necessary to deliver goods and services that are valued by customers.

life cycle

The consideration of all potential resources potentially consumed over a product's entire existence is often referred to as ____-____ costing.

well-organized sequential production processes. preventive maintenance. high equipment reliabilit

The design of a just-in-time system is often associated with

to eliminate non-value added activities from the value chain

The overall objective of using ABC, target costing, JIT, and TQM is:

target costing

The process of ____ ____ is aimed at the earliest stages of new product or service development with the intent of creating processes throughout the entire value chain to ensure the profitability of the new product or service.

activity based management

The process of analyzing activity-based costs to help minimize non-value-added activities is referred to as ___-___-___.

True

The process of using activity-based costs to help reduce and eliminate non-value-added activities is activity-based management.

suppliers and production-related activities.

The procurement of materials and the activities needed to convert them into finished products are examples of

just in time

The term ____-____-____ refers to acquiring materials and manufacturing products on an as-needed basis to fill customer orders.

True

The value chain includes research and development, customer service, marketing, and suppliers.

assigning responsibility for managing quality rewarding quality performance providing good quality measures for decision making

Total quality management processes includes:

True

True or false: In order to engage in activity-based management, activity-based costing (ABC) information must first be created.

True

True or false: Quality is a multidimensional concept.

False

True or false: Target costing focuses on activities associated with well-established processes.

True

True or false: The understanding of production processes is the cornerstone of target costing.

add desirability to products and services in the eyes of the customer. enhance a company's value chain.

Value-added activities

False

Value-added activities add to a product's desirability from the manufacturer's perspective.

External failure costs decline. Customer satisfaction and repeat business increase.

What happens as the consumption of prevention and appraisal resources increases?

Appraisal costs decrease. The total cost of quality decreases. Appraisal reliability increases.

What happens as the cost of computerized manufacturing techniques decrease?

production and continuous improvement planning and market analysis concept development production design and value engineering

Which of the following are components of the target costing process?

Value-added time expressed as a percentage of cycle time. Resources consumed by quality-related activities expressed as a percentage of sales dollars.

Which of the following are expressions of productivity?

R&D activities that satisfy engineering specifications but do not meet customer needs accounting and financial reporting activities

Which of the following are generally considered non-value-added activities associated with period costs?

clear and truthful marketing activities timely and competent customer service activities

Which of the following are generally considered value-added activities associated with period costs?

Disposal costs Product development expenditures Warranty costs

Which of the following are generally included among life-cycle costs?

Implementing just-in-time production processes. Engaging in clear and truthful marketing efforts. Ensuring timely distribution and easy access to products and services.

Which of the following are value-added activities in the value chain?