Managerial Exam 2

JIT purchasing and production systems can be used in service industries as supplies and the labor to manage those supplies can be a significant cost element in some service organizations

True

Which term is defined as: "the flow of goods, services, and info from the initial sources of materials and services to the delivery of products to consumers"?

Supply chain

A company's inventory levels are dependent on a number of variables including the demand for the product, supplier relationships, and supplier relationships with their manufacturers.

TRUE

The cost of breakage and obsolescence are relevant incremental costs of carrying inventory.

TRUE

The supply chain describes the flow of goods, services, and info from initial source of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the same company or in other companies.

TRUE

To comply w/GAAP, backflush cost numbers can be adjusted by recording a journal entry.

TRUE

Which stmt is true of relevant inventory costs

The costs of expediting an order from a supplier are relevant incremental costs of stockouts

Which costs is a relevant inventory carrying cost of carrying inventory?

The costs of shrinkage

Which stmt is true of the economic order quantity decision model?

The larger the order qty, the lower the annual relevant ordering costs and the higher the annual relevant carrying costs

Which costs is a relevant inventory stockout cost?

The lost CM on sales forgone as a result of customer dissatisfaction due to unavailability of goods

Under economic-order-quantity decision model, which is an assumption? Assumed that _____________

The same qty is ordered at each reorder point

Which stmt best defines manufacturing cycle time in JIT production systems?

The time from when an order is received until it becomes a FG

Which describes manufacturing cells?

They are work areas w/diff types of equip grouped together to make related products and to minimize handling costs

Which is a disadvantage of an ERP system?

They must often be customized to fit the strategic needs of the user

The purchase-order lease time is the

Time between placing an order and its delivery

A push-through system or MRP system focuses 1st on forecasted amt and timing of FGs and then determines the demand for materials components and sub assemblies at each of the prior stages of production.

True

In a backflush-costing system, no record of work in process appears in the accounting records.

True

JIT production systems are also referred to as lean production.

True

T/F All inventory costs are available in financial accounting systems.

False

Which is the correct mathematical expression to calculate annual relevant ordering costs?

(Demand in units for a specified period/size each order) x Relevant ordering cost per purchase order

If Kenton Inc has safety stock of 215 units and avg weekly demand is 35 units, how many days can be covered if shipment from supplier delayed by 16 days?

43 days. 215/35= 6 weeks = 43 days

If Premium Co has a safety stock of 480 units and the avg daily demand is 68 units, how many days can be covered if the shipment from supplier is delayed by 4 days?

7 days. Days that can be covered 480/68= 7 days

Which stmt best defines lean accounting?

A costing method that supports creating values for the customer by costing the entire value stream thereby eliminating waste in the accounting process

Which stmt best defines backflush system?

A costing system that omits recording some of the journal entries relating to the stages from purchases of DM to sale of FG

Which stmt best defines a JIT production system?

A demand-pull system in which each component in a production line is produced immediately as needed by the next step in the production line

Which stmt best defines a materials requirement planning system?

A push-through system that manufactures FGs for inventory on the basis of demand forecasts

Which stmt best defines a trigger point in a sequential-tracking cost system?

A stage in the production cycle at which journal entries are made in the accounting system

Which stmt best describes ERP system?

A system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities

T/F Carrying costs only include those costs that are entered into the financial accounting system and do not include the opp cost of the investment tied up in inventory.

False

T/F Companies use safety stock as a buffer against unexpected decreases in demand.

False

A costing system that omits recording some or all of the journal entries relating to the cycle from purchase of DM to the sale of FG is called?

Backflush costing

Lean accounting is much simpler than traditional product costing. Why?

Because calculating actual product costs by value streams requires less OH allocation

Lean accounting is much simple than traditional product costing because?

Calculating actual product costs by value streams require less OH allocation

Which involves process of making decisions for significant financial investments in projects to develop new products, expand production, expand production capacity, or remodel current production facilities?

Capital budgeting

The opp cost of the investment tied up in inventory is a(n)

Carrying cost

Relevant total costs in the economic order qty decision model equal relevant ordering costs plus which costs?

Carrying costs

The cost that result when a company runs out of a particular for which there is customer demand

Stockout cost

Under backflush costing approach where 3 trigger points are used (stage A, stage C, and stage D), the purchase of materials is:

Debited to Materials and In-Process Inventory Control account

Which is true of JIT production systems?

Defects arising at one workstation affect other workstations in the line quickly because of the tight links between workstations

Which stmt true of the economic-order-qty decision model?

Demand, ordering costs, and carrying costs are all known w/certainty

The economic order quantity model completely ignores

Stockout costs

A successful implementation of a JIT production system should result in a lowering of the inventory turnover ratio.

FALSE

Companies that implement JIT purchasing will emphasize developing short-term supplier relationships/many suppliers to attain flexibility.

FALSE

In a JIT system, suppliers are selected primarily on the basis of their ability to provide materials and products at the lowest possible price

FALSE

JIT purchasing describes the flow of goods, services, and info from the initial sources of materials and services to the delivery of products to consumers, regardless of whether hose activities occur in the same organization or in other organizations,

FALSE

Successful implementation of a JIT production system and effective accomplishments of its goals should result in a decrease in the inventory turnover ratio and a decrease in the number of days of inventory on hand.

FALSE

The costs of storage space owned are always relevant costs of carrying inventory.

FALSE

A firm using backflush costing system will always use actual costs rather than standard costs

False

A positive aspect of backflush costing is the presence of the visible audit trail.

False

Companies that have low manufacturing lead time usually find that a version of backflush costing will report cost numbers totally different to what a sequential costing approach would report.

False

Companies that utilize backflush costing typically prorate under-allocated or overallocated conversion costs between WIP , FG and COGS.

False

In lean accounting environments, it is critical that WIP and FG accounting be accurate for accurate financial accounting and pricing decisions.

False

JIT systems are similar to MRPs as both are demand-pull systems.

False

Lean accounting takes into consideration all costs associated with inventories.

False

T/F Purchasing cost arise in preparing and issuing purchase orders, receiving and inspecting the items included in the orders, and matching invoices received, purchase orders, and delivery records to make payments.

False

T/F Shrinkage is measured by adding (a) the cost of the inventory recorded on the books in the absence of theft and other incidents just mentioned, and (b) the cost of inventory when physically counted.

False

T/F Stockout costs arise when an org experiences an ability to deliver its goods to its customers.

False

T/F The EOQ model factors in the probability of stockouts.

False

T/F The opp cost of the stockout is the lost revenue on the sale not made plus any lost revenue on future sales due to customer ill will.

False

T/F The optimal safety-stock level is the qty of safety stock that minimizes the sum of annual relevant Stockout and ordering costs.

False

The accounting procedures in a backflush-costing system strictly adhere to GAAP

False

The journal entry to dispose of the difference between actual conversion costs incurred and standard conversion costs allocated is different under backflush costing and sequential tracking.

False

Sharing sales info throughout the supply chain leads to what?

Fewer manufacturing orders that had to be expedited

The optimal safety stock level is the qty of safety stock that minimizes the sum of the annual relevant

Stockout costs and carrying costs

A stage of capital budgeting that indicates potential capital investments that agree with an organization's strategy?

Identify projects stage

Stage of capital budgeting process that tracks realized cash flows and compares those against estimated numbers?

Implement the decision, evaluate performance, and learn stage

Which of the stmts is trued of just-in-time (JIT) purchasing?

In JIT purchasing, raw materials (or goods) are purchased so products are delivered just as needed for production or sales

Which stmt is true of lean accounting?

It does not always compute costs for individual products but does not emphasize product costs by value stream

For inventory carrying costs, which stmt is true of the relevant opp cost of capital of inventory?

It is calculated as the required rate of return x per unit costs of acquiring inventory including the purchase price, incoming freight, and incoming inspection.

Which defines setup time?

It is the time required to get equip, tools, and materials ready to start the production of a component or product

A demand-pull system in which each component in a production line is produced immediately as needed by the next step in the production line is referred to as ___________

JIT production

A system that emphasizes lean production techniques, low quantities of inventory, and close coordination among production workstations is called ___________________

JIT production

Which is not a reason why a company would adopt JIT purchasing practices?

Low carrying costs of inventory

The management accountant aids in MRP by ___________

Maintaining accurate records of inventory and its costs

Stage of capital budgeting process that determines which investment yields the greatest benefit and the least cost to the organization?

Make decisions by choosing among alternatives stage

Stage of capital budgeting process that forecasts all potential cash flows attributable to the alternative projects?

Make predictions stage

A grouping of all diff types of equip used to make a given product is referred to as ____________

Manufacturing cells

An order is received by a company and then spends 1 day in assemble and 3 days in finishing before being stored in the warehouse. On ang, the units are stored for 3 days before being shipped to a customer. What measure is true?

Manufacturing cycle time of 4 days

A push-through system that manufactures finished goods for inventory on the basis of demand forecasts and produces a master schedule for qty and timing of units to be produced.

Materials requirements planning

Stage of capital budgeting process in which plant manager is queried for assembly time?

Obtain info stage

Which stmt is true of costs associated w/goods for sale?

Opp costs are not recorded in the accounting system

The costs of obtaining purchase approvals are (inventory)

Ordering costs

Best definition of inventory management?

Planning, coordinating, and controlling activities related to the flow of inventory, through, and out of an organization

4 categories of quality costs are

Prevention,appraisal, internal failure and external failure costs

The incoming freight chargers of inventories are

Purchasing costs

Which stmt is true of costs associated w/goods for sale?

Purchasing costs include incoming freight costs and are reduced by discounts

The annual relevant carrying costs of inventory consists of the sum of the _______________

Relevant incremental costs plus the relevant opportunity costs of capital

Traditional normal and standard costing systems usually use 4 trigger points to record the flow of costs through the production system. Such costing is called _____________

Sequential tracking

Which term is defined as the time required to get equipment, tools, and materials ready to start production?

Setup time

The cost that result from theft of inventory are

Shrinkage costs

Increases in the carrying cost and decreases in the ordering cost per purchase order result in _______________

Smaller EOQ amounts

Proponents of lean accounting argue that the lack of individual product cost info is irrelevant because most decisions about products are made at the product line level making value stream costs more relevant than product costs.

True

T/F Freight in charges forms part of purchasing

True

T/F Inventory mgmt is the planning, organizing and controlling activities that focus on the flow of materials into, through, and out of the org.

True

T/F The EOQ model is solved using calculus but the key intuition is that relevant costs are minimized when relevant ordering costs equal relevant carrying costs.

True

T/F The reorder point is the qty level of inventory at which a new purchase order is made.

True

The demand-pull feature of JIT production systems results in close coordination among workstations and smooths the flow of goods.

True

Which stmt is true of financial and non financial measures in JIT production systems?

Units produced per hour are expected to increase

Which stmt is true of a backflush costing system?

Usage of a backflush costing system does not satisfy the absorption costing rules of GAAP

A system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities is known as a(n)

enterprise resource planning (ERP) system