Chapters 12 & 13
When considering accepting a special order,
- there must be idle capacity - normal sales must not be affected
Gavin, Inc. recorded the following information for one of its products. All amounts are in days: Wait time 5.0; Inspection time 0.7; Process time 2.5; Move time 0.4; Queue time 3.0. Gavin's delivery cycle time is ______ days.
11.6 Delivery cycle time = wait time + process time + inspection time + move time + queue time.
JPL, Inc. recorded the following information for one of its products. All amounts are in days: Wait time 4.0; Inspection time 0.6; Process time 2.3; Move time 0.7; Queue time 3.1. JPL's throughput (manufacturing cycle) time is ______ days.
6.7 Throughput time = process time + inspection time + move time + queue time.
An integrated set of performance measures that are derived from the company's strategy is a(n)
Blank 1: balanced Blank 2: scorecard
The sum of prevention, appraisal, internal failure, and external failure costs is called the
Blank 1: cost Blank 2: quality
When considering overall equipment effectiveness, avoiding machine breakdowns and minimizing average setup times is the key to increasing the rate. (Enter only one word per blank.)
Blank 1: utilization
Companies establish selling prices based on the economic worth of benefits their goods and services provide to customers when using pricing. (Enter only one word per blank.)
Blank 1: value Blank 2: based
Being less dependent on suppliers and making profits on both parts and the final product are advantages of
Blank 1: vertical Blank 2: integration
Given a reference value of $5,500 and a differential value of $3,200, the value-based price will be greater than $3,200 and less than $5,500.
False
If a company prices all of its products above the price floor, they will always make a profit.
False
Some decisions have only one alternative and cannot consider steps in decision making.
False
True or false: Corporate social responsibility focuses on legal compliance only.
False
True or false: Depreciation of existing assets is relevant to decisions.
False
As it applies to sell or process further decisions, which term refers to a product that is in the process of being made?
Intermediate product
Which of the following is NOT a dimension of learning and growth measures?
Lean resourcement management
Choose the groups of performance measures typically used in the balanced scorecard approach.
Learning and growth Financial Customer
Which of the following is NOT a dimension of internal business process measures?
Skills development
Which of the following should not be included in the analysis when making a decision?
Sunk costs Non-differential future costs
Costs incurred to identify defective products before they are shipped to customers are ______ costs.
appraisal
A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n)
avoidable
Customers and competitors play important roles in determining a company's price
ceiling
Average costs
contain sunk costs are often misleading
The price of a customer's best available alternative plus the value of what differentiates the product from that alternative is the product's
economic value to the customer
A business segment should only be dropped if a company can save more in ______ costs than it loses in contribution margin.
fixed
Pricing all a company's products above the price floor does not guarantee a profit because all ______ costs may not be covered.
fixed
In general, the less sensitive customers are to price, the ______ the optimal selling price will be.
higher
When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative
income statements
A company's price floor is determined by
incremental costs
What the company does in an attempt to satisfy customers falls into the ______ group of the balance scorecard.
internal business processes
When deciding whether to drive your car or take a train to a destination, the costs for your car insurance and driver's license are ______ costs.
irrelevant
Joint costs are
irrelevant in decisions regarding what to do with a product after split-off
Two or more products produced from a common input are called
joint products
A decision to carry out one of the activities in the value chain internally rather than to purchase externally from a supplier is a ______ decision.
make or buy
Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision.
make or buy
Social and environmental performance measures ______ balanced scorecard.
may be incorporated into an existing
When it comes to quality of conformance, an economy car ______ quality of conformance as a luxury car
may have the same
If a cost is traced to a segment using activity-based costing, it ______ an avoidable cost of the segment.
may or may not be
Joint costs incurred prior to the split-off point are ______ relevant in decisions regarding what to do from the split-off point forward.
never
Compensation should
only be tied to balanced scorecard measures after the organization has been successfully managed with it for some time
The potential benefit given up when selecting one alternative over another is a(n) ______ cost.
opportunity
When planning a trip and deciding whether to drive or fly, the ______ is a sunk cost and should be ignored.
original cost of the car
Defect-free output ÷ total output = the ______ rate.
quality
Preventing, detecting, and dealing with defects causes the incurrence of ______ costs.
quality
Components of throughput time include _____ time.
queue inspection process
Differential revenue is an example of a(n) ______ benefit.
relevant
When making a decision only ______ costs and benefits should to be included in the analysis.
relevant
Deciding what to do with a joint product at the split-off point is a ______ decision.
sell or process further
A one-time order that is not considered part of the company's normal ongoing business is called a ______ order.
special
The point in the manufacturing process at which joint products can be recognized as separate products is called the ______ point.
split-off
Operational excellence is an example of a company ______.
strategy
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ______ costs.
sunk
Costs that have no impact on future cash flows and are irrelevant to decisions are ______ costs.
sunk
The process of determining the maximum allowable cost for a product and developing a profitable prototype is called
target costing
When making a decision, only relevant items are included in the analysis of the alternatives when using
the differential cost approach only
When making a decision, irrelevant items are included in the analysis of both alternatives when using
the total cost approach only
A set of activities ranging from development to production to after-sales service is called
the value chain
When considering a company's expanded set of corporate social responsibilities, "people, planet and profit: is also know as the
triple bottom-line
Establishing selling prices based on the economic worth of benefits that their goods and services provide to customers is the basis of
value-based pricing
A special order should be accepted
when the incremental revenue from the special order exceeds the incremental costs of the order
When a resource, such as space in the factory, has no alternative use, its opportunity cost is
zero
Deciding what to do with a joint product at the split-off point is a(n)
Blank 1: sell Blank 2: process Blank 3: further
A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) decision. (Enter only one word per blank.)
Blank 1: special or specialty Blank 2: order
Customer value propositions are the essence of
Blank 1: strategy or strategies
The market is instrumental in determining a product's price through the laws of
Blank 1: supply Blank 2: demand
In order to prevent confusion and keep attention focused on critical information, it is desirable to
isolate relevant costs from irrelevant costs
The costs incurred up to the split-off point in a process in which two or more products are produced from a common input are known as ______ costs.
joint
The costs provided by a well-designed activity-based costing system are ______ relevant to a decision.
potentially
A balanced scorecard
presents a theory of how a company can take action to attain its desired outcomes
To reduce the cost of quality organizations should increase
prevention and appraisal costs to reduce internal and external failure costs
One of the great dangers in allocating common costs is that such allocations can make a product line look less profitable than it really is. (Enter only one word per blank.)
Blank 1: fixed
The lowest price a company can charge and still make incremental profits on the sale is the price
Blank 1: floor
In general, the more sensitive customers are to price, the ______ the optimal selling price will be.
lower
Quality cost information reports
- show managers if quality control costs are poorly distributed - help identify the financial cost of defects - give managers an idea of where to focus quality control efforts
The target costing approach was developed because
- the market really determines prices - most of a product's cost is determined in the design stage
Which of the following statements are true?
-Measuring and reporting quality costs does not solve quality problems. -The impact of customer ill will is generally not found on quality control reports. -Quality cost information helps managers identify the relative importance of quality problems.
Which of the following statements are true?
-Using balanced scorecard performance measures to reward employees can result in sub-optimal results. -It is important that balanced scorecard measures are not easily manipulated.
An advantage of using a(n) is that it continually tests the theories underlying management strategies. (Enter only one word per blank.)
Blank 1: balanced Blank 2: scorecard
Measures related to innovation and time are included in the internal section of the balanced scorecard.
Blank 1: business Blank 2: process or processes
The highest price customers are willing to pay is called the price
Blank 1: ceiling
A concept whereby organizations consider the needs of all stakeholders when marking decisions is called
Blank 1: corporate Blank 2: social
When a company applies a predetermined markup to a cost base to determine the selling price, it is using pricing. (Enter only one word per blank.)
Blank 1: cost Blank 2: plus
Measures related to satisfaction, lifetime value and loyalty are included in the section of the balanced scorecard. (Enter only one word per blank.)
Blank 1: customer
Space being used that would otherwise be idle has a(n) cost of zero. (Enter only one word per blank.)
Blank 1: opportunity or relevant
The "triple-bottom line" refers to and profit. (Enter only one word per blank.)
Blank 1: people Blank 2: planet
Product markup is generally expressed as a(n) of cost. (Enter only one word per blank.)
Blank 1: percentage, %, or percent
The degree to which a change in price affects unit sales of a product or service is the
Blank 1: price Blank 2: elasticity Blank 3: demand
Products that meet or exceed their expectations and are free from defects that mar or degrade their performance are said to have a high
Blank 1: quality Blank 2: conformance
A product's economic value to the customer is based on the value and the value. (Enter only one word per blank.)
Blank 1: reference Blank 2: differentiation
Because companies target different customers with different kinds of products and services, performance measures should be tailored to the specific
Blank 1: strategy or strategies
Corporate social responsibility performance reports are also called reports. (Enter only one word per blank.)
Blank 1: sustainability
The product development team is given the responsibility of designing a product so that it can be made for no more than the
Blank 1: target Blank 2: cost
The manufacturing cycle efficiency is computed by relating the value-added time to the time. (Enter only one word per blank.)
Blank 1: throughput
When considering decision alternatives, both relevant and irrelevant costs are included when using the
Blank 1: total
When considering overall equipment effectiveness, avoiding machine breakdowns and minimizing average setup times is the key to increasing the
Blank 1: utilization
Activities ranging from development to production to after-sales service are called a(n)
Blank 1: value Blank 2: chain
When estimating the cost of taking a 300 mile trip, the average cost per mile × 300 is the best way to evaluate the total cost.
False
Which of the following performance measures are part of the balanced scorecard?
Learning and growth Customer Financial
Which of the following may be an advantage of making a part rather than buying it?
Less dependence on outside suppliers A smoother flow of parts and materials for production
If a price change has little effect on unit sales, the demand is considered to be
inelastic
Assembling products and handling baggage are examples of ______ processes.
internal business
Costs and benefits that should be ignored when making decisions are called ______ costs and benefits.
irrelevant
Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process.
irrelevant
When deciding whether to fly or take the train on a trip, the cost of putting your pet in a boarding facility while you are away is a(n) ______ cost.
irrelevant
Implementing a quality control project to prevent defects from occurring results in ______ costs.
prevention
Focusing on future costs and benefits that are not the same between the choices is
differential analysis
The balanced scorecard framework
-considers market performance as a financial measure -holds organizations accountable for translating improvements in nonfinancial performance to financial results
The formula to calculate the target cost includes
-desired profit per unit -anticipated selling price
The Global Reporting Initiative
-standards require companies to provide disclosures related to stakeholder engagement -has created a widely adopted sustainability reporting framework
When a product has an established market price
-there is no reason for suppliers to charge less than the established price -consumers will not pay more than the established price
Quick to Ship Company has a process time of 2 days and a throughput time of 8 days. The manufacturing cycle efficiency is
.25 2 ÷ 8 =.25
Which of the following can make a product line look less profitable than it really is?
Allocated common fixed costs
Which of the following statements are true regarding corporate social responsibility and the balanced scorecard?
Average compensation for female employees ÷ average compensation for male employees is a learning and growth measure. A company should always connect its measures using if-then hypothesis statements.
Miracle Clean's variable costs are $3.00 per bottle and Fixed Expenses are $350,000 per year. The company currently sells 150,000 bottles for $6.50 which results in profit of $175,000. The company is considering raising the selling price to $7.00 per bottle which is expected to decrease sales by 20%. If the price is raised, the number of units that must be sold to keep the profits unchanged is
Blank 1: 131,250 or 131250
Miracle Clean's variable costs are $3.00 per bottle and Fixed Expenses are $350,000 per year. The company currently sells 150,000 bottles for $6.50 which results in profit of $175,000. The company is considering raising the selling price to $6.75 per bottle which is expected to decrease sales by 5%. If the price is raised, the number of units that must be sold to keep the profits unchanged is
Blank 1: 140,000
Given a reference value of $3,500 and a differential value of $4,200, the value-based price will be greater than or equal to $ and less than or equal to $
Blank 1: 3,500 Blank 2: 7,700
A leading organization in the field of social and environmental performance measurement is the
Blank 1: Global Blank 2: Reporting
Optimal selling prices can be calculated using Microsoft Excel
Blank 1: Solver
Anticipated selling price - Desired profit =
Blank 1: Target Blank 2: cost
A cost that can be eliminated by choosing one alternative over another is a(n) cost. (Enter only one word per blank.)
Blank 1: avoidable or relevant
An increase in cost between two alternatives is a(n)
Blank 1: incremental or differential
Which of the following is not a category of quality costs?
Direct costs
A company's strategy has an important influence on the categories it will include on its balanced scorecard.
False
Which of the following best describes the price elasticity of demand?
This is the degree to which a change in price affects the unit sales of a product.
Improvements in learning and growth and internal business process measures should ultimately have a positive influence on customer measures.
True
True or false: Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information.
True
An integrated set of performance measures that are derived from the company's strategy is
a balanced scorecard
A company is considering buying a component part that they currently make. Items related to the equipment being used to make the component that are relevant to this decision include
alternative uses for the equipment salvage value
Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is as follows: Cost Per Unit Total Variable manufacturing cost $12 $240,000 Supervisor salary $3 $60,000 Depreciation $1 $20,000 Allocated fixed overhead $7 $140,000 If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should Blank______.
continue to make the part — $60,000 advantage The total savings is $60,000 ($18 buy price - $12 variable cost - $3 supervisor salary = $3 advantage to make × 20,000 units).
A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in
contribution margin
Applying a predetermined markup percentage to a cost base to determine the selling price is called
cost-plus pricing
To calculate the optimal selling price using Microsoft Excel's Solver requires
current unit sales current selling price percentage change in selling price
The first step in decision making is to
define the alternatives
The key to effective decision making is
differential analysis
Actual run time ÷ ideal run rate = the Blank______ rate.
efficiency
Responsibility for designing a product that can be made for no more than the target cost is given to the
product development team
Miracle Clean's variable costs are $3.00 per bottle and Fixed Expenses are $350,000 per year. The company currently sells 150,000 bottles for $6.50 which results in profit of $175,000. The company is considering raising the selling price to $7.00 per bottle which is expected to decrease sales by 20%. If the price is raised profits are expected to (increase/decrease) by $ per year. (Enter the profit increase or decrease as a whole number.)
Blank 1: decrease Blank 2: 45,000 or 45000
The time between when an order is placed and when it is delivered is known as the
Blank 1: delivery Blank 2: cycle Blank 3: time
When considering decision alternatives, only relevant costs are included when using the cost approach. (Enter only one word per blank.)
Blank 1: differential
When considering overall equipment effectiveness, avoiding minor work stoppages and retaining properly trained operators to run and maintain machines is the key to maximizing the
Blank 1: efficiency
If price changes significantly impact product sales, demand for the product is said to be . If the change in price does not greatly impact sales, demand is
Blank 1: elastic Blank 2: inelastic
When a company recalls a defective product, a(n) cost is incurred. (Enter only one word per blank.)
Blank 1: external Blank 2: failure
Measures related to trend and market performance are included in the section of the balanced scorecard. (Enter only one word per blank.)
Blank 1: financial or finance
When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative
Blank 1: income or profit Blank 2: statements or statement
Miracle Clean's variable costs are $3.00 per bottle and Fixed Expenses are $350,000 per year. The company currently sells 150,000 bottles for $6.50 which results in profit of $175,000. The company is considering raising the selling price to $6.75 per bottle which is expected to decrease sales by 5%. If the price is raised profits are expected to (increase/decrease) by $ per year. (Enter the profit increase or decrease as a whole number.)
Blank 1: increase Blank 2: 9,375 or 9375
When a product is past the split-off point, but is not yet a finished product, it is called a(n) product. (Enter only one word per blank.)
Blank 1: intermediate
Costs incurred up to the split-off point in a process in which two or more products are produced from a common input are called costs. (Enter only one word per blank.)
Blank 1: joint
The split-off point is the point in the manufacturing process at which the products can be recognized as separate products. (Enter only one word per blank.)
Blank 1: joint
Two or more products that are produced from a common input are known as products. (Enter only one word per blank.)
Blank 1: joint
Measures related to recruiting and retention are included in the and section of the balanced scorecard.
Blank 1: learning Blank 2: growth
When a product has an established price, customers will not pay more for it and there is no reason for a supplier to charge less. (Enter only one word per blank.)
Blank 1: market
The difference between selling price and cost is called a product's
Blank 1: markup
Opportunity costs are not found in accounting records because they are not relevant to decisions.
False
When making a decision to either buy a movie ticket or rent a DVD, the cost of the movie ticket is an example of a(n) ______ cost.
incremental avoidable
