Cost CH14
application of traditional cost is on ........... basis application of cost management is on ........... basis
1- continuous 2- ad hoc
Maintaining pollution equipment
=Internal Failure
62. Which of the following describes a kaizen cost reduction process? a. It has two process cycles, namely, continuous improvement and maintenance. b. It includes a kaizen standard, which is an ideal standard. c. A maximum standard is set for future performance based on the current kaizen standard attained. d. both a and c
ANSWER: a
A firm's warranty costs are £125,000 per year. A competitor's warranty costs are £25,000 per year. The nonvalue-added costs are a. £125,000. b. £100,000. c. £25,000. d. £0.
ANSWER: a
According to the life-cycle cost budgeting model, 90 percent of costs are incurred during the a. development stage b. production stage c. post production stage d. logistics support stage
ANSWER: a
Which of the following is NOT a necessary condition for classification as a value-added activity? a. the activity produces no change of state b. the change of state was not achievable by preceding activities c. activity enables other activities to be performed d. All of the above are necessary conditions.
ANSWER: a
Which of the following is an example of a value-added activity? a. supervision of production workers b. inspection of products c. scheduling of production d. all are value-added activities
ANSWER: a
Setup time for a product is 12 hours. A firm that uses JIT and produces the same product has reduced setup time by 1 hour. Setup labour is £20 per hour. If the company wants to reduce nonvalue-added costs by 40 percent next year, the currently attainable standard for setup time would be a. 7.6 hours. b. 7.2 hours. c. 6.6 hours. d. 4.8 hours.
ANSWER: a SUPPORTING CALCULATIONS: 12-11(0.40) = 7.6
A company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average £4,000 per day. A competitor keeps 10 days of inventory on hand, and the competitor's carrying costs average £2,000 per day. The nonvalue-added costs for the company are a. £80,000. b. £40,000. c. £20,000. d. £-0-.
ANSWER: aRATIONALE: SUPPORTING CALCULATIONS: £4,000 × 20 days = £80,000
. Which of the following process dimensions of the activity-based management model deals with "why"? a. resources b. cost driver analysis c. activities d. performance measures
ANSWER: b
77. Which of the following is TRUE about a manufacturing cell? a. There is increased movement of work in process. b. It usually produces a particular product or product family. c. Workers are highly specialized. d. Supervision is important.
ANSWER: b
A withdrawal Kanban specifies a. how much should be produced to replace inventory b. the quantity that a subsequent process should withdraw from the preceding process c. when customers should be notified to pick up orders d. when suppliers should be notified to deliver more parts
ANSWER: b
For nonvalue-added activities that are unnecessary, the standard quantity is a. one. b. zero. c. actual quantity minus standard price. d. actual quantity plus standard price.
ANSWER: b
The major source of information for the activity cost management system is a. cost driver analysis. b. an activity- based costing system. c. a performance measurement system. d. product information.
ANSWER: b
Value-added costs are standard costs based on a. currently attainable standards. b. ideal usage standards. c. cycle time. d. the value added.
ANSWER: b
Which of the following is an example of a nonvalue-added manufacturing activity? a. assembly b. scheduling c. finishing d. all are value-added activities
ANSWER: b
. Benchmarking a. is an approach to standard setting that is used to identify opportunities for activity improvement b. uses best practices as the standard for evaluating activity performance c. Both a and b are correct. d. Neither a nor b is correct.
ANSWER: c
54. The responsibility accounting system developed for operations in a continuous improvement environment would be a. financial-based responsibility accounting b. functional-based responsibility accounting c. activity-based responsibility accounting d. strategy-based responsibility accounting
ANSWER: c
92. Which of the following is NOT a prevention activity? a. evaluating and selecting supplies b. evaluating and selecting pollution control equipment c. auditing environmental activities d. designing processes
ANSWER: c
A technique for improving performance of activities and processes that compares the number of times an activity can be performed to the number actually performed is called a. value-added activity reporting. b. activity flexible budgeting. c. activity capacity reporting. d. activity trend reporting
ANSWER: c
The just-in-time (JIT) approach to inventory management a. allows greater flexibility as to when products can be manufactured b. results in higher inventory levels but reduces ordering and setup costs c. results in lower inventory carrying costs d. None of the above are correct.
ANSWER: c
Which of the following process dimensions of the activity-based management model deals with "what"? a. resources b. cost driver analysis c. activities d. performance measures
ANSWER: c
Which of the following stages comes first? a. Introduction b. Growth c. Development d. Decline
ANSWER: c
Each unit of product requires 16 pounds of material. Due to scrap and rework, each unit has been averaging 18 pounds of material. The material costs £6 per pound. If the company wants to reduce nonvalue-added costs by 25 percent next year, the currently attainable standard for material would be a. 16.00 pounds. b. 16.80 pounds. c. 17.50 pounds. d. 18.00 pounds.
ANSWER: cRATIONALE: SUPPORTING CALCULATIONS: 2 - (25% × 2) = 1.50 pounds; 1.50 pounds + 16 pounds = 17.50 pounds
A technique for improving performance of activities and processes that searches for best practices is called a. value-added reporting. b. kaizen costing. c. trend reporting. d. benchmarking.
ANSWER: d
How does just-in-time manufacturing affect break-even analysis? a. Variable costs are reduced with a corresponding increase in fixed costs. b. Direct materials is the major variable cost. c. Direct labour and maintenance are viewed as fixed costs. d. all of the above
ANSWER: d
In a continuous improvement environment, waste includes a. inventories b. rework c. setup time d. all of the above
ANSWER: d
In the zero-defects view of quality, a. control costs do not increase without limit b. control costs initially increase and then decrease as the firm approaches the robust start c. failure costs can be driven to zero d. all of the above are true
ANSWER: d
Life-cycle cost management is particularly important for firms that have a. short life cycles because those firms have less opportunity to take advantage of the time value of money b. long life cycles because those firms have more opportunity to take advantage of the time value of money c. long life cycles because those firms have more opportunity to enhance profit performance through product redesign or cost reduction d. short life cycles because those firms have less opportunity to enhance profit performance through product redesign or cost reduction
ANSWER: d
Product life-cycle costs do NOT include which of the following? a. development costs b. production costs c. costs of logistics support d. All of the above are life-cycle costs.
ANSWER: d
Setup time for a product is 12 hours. A firm that uses JIT and produces the same product has reduced setup time to 1 hour. Setup labour is £6 per hour. The value-added costs are a. £72. b. £66. c. £12. d. £6.
ANSWER: d
The purpose of trend reporting on nonvalue-added costs is to a. trace resources to cost objectives. b. assess value content. c. define root causes. d. see if cost reductions occurred as expected.
ANSWER: d
Warranty work is a(n) a. prevention cost b. appraisal cost c. internal failure cost d. external failure cost
ANSWER: d
Which of the following is NOT a detection activity? a. inspecting products and processes b. developing environmental performance measures c. testing for contamination d. operating pollution control equipment
ANSWER: d
A company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average £4,000 per day. A competitor keeps 10 days of inventory on hand, and the competitor's carrying costs average £2,000 per day. The value-added costs are a. £80,000. b. £40,000. c. £20,000. d. £-0-.
ANSWER: dRATIONALE: SUPPORTING CALCULATIONS: Inventory carrying costs are nonvalue-added costs. POINTS: 1
Value analysis
Also known as value engineering is a systematic interdisciplinary examination of factors affecting the cost of a product or service in order to devise means of achieving a specific purpose of the required standards of quality and reliability of the target cost
Process acceptance
Appraisal
commited or locked-in costs
Are those costs that have not been incurred but that will be incurred in the future on the basis of decisions that have been already made
the aim of target costing is to
Design a product with an expected cost that does not exceed targets cost and that also meet the target level of functionality
Auditing environmental activities
Detection
Target costing stages
Determine the price Deduct target profit from the target price to determine the target cost estimate actual cost if Estimated actual cost exceeds the target cost investigate ways of driving down the actual cost to the target cost
Value analysis requires the use of
Functional analysis
The major advantage of adopting target costing
It is deployed during a product design and planning stage so that it can have a maximum impact in determining the level of the locked-in costs
Recycling products
Prevention
In target costing design teams use
Reverse engineering, value analysis and process improvements
Functions might consist of
Style, comfort, operability, reliability, quality, attractiveness and many others
target costing
Technique that focuses on managing costs during a project planning and design phase
The aim of reverse engineering
The aim is to benchmark provisional product designs with the designs of competitors and to incorporate any observed relative advantages of the competitors approach to product design
A major feature of target costing is that
The team approach is adopted
Functional analysis
This process involves the decomposing the product into its many elements or attributes
the aim of value analysis is
To achieve the same target cost by 1-identifying improved product designs that reduce the product cost without sacrificing functionality 2- eliminating unnecessary functions that increase the product cost and for which customers are not prepared to pay extra
determine the amount of value-added and nonvalue-added costs. A time-and-motion study revealed that it should take 10 minutes to produce a product that now takes 50 minutes to produce. labour is £18 per hour.
Value-added costs = (£18 × 10/60) = £3 Nonvalue-added costs = [(50 - 10)/60] × £18 = £14.40
Strategic cost management focuses on
cost reduction and continuous improvement and changes in the ways that activities and processes are performed
Reverse Engineering
involves examining a competitor's product in order to identify opportunities for product improvements and/or cost reduction
The target cause cannot be attained then the product
should not be launched
And understanding of life-cycle costs and how they are committed and incurred at different stages throughout a product life cycle lead to the emergence of
target costing
All warranty costs are considered nonvalue-added costs.
true
many of the approaches that are incorporated within the area of cost management do not necessarily involve the use of accounting techniques
true, Cost control relies heavily on accounting techniques
What is budgeted for this projected activity level?
use the drivers
