Cost Accounting Systems
(D. Product Quality and Productivity/ Total Quality Management)
D. laborers put in more effort.
D. Product Quality and Productivity/ Total Quality Management
7. A partial productivity measure has several limitations, including that:
A. it ignores any productivity effect caused by other manufacturing factor quantity changes.
B. it ignores any effect that changes in the production factor have on productivity.
C. it ignores and effect that changes in operating characteristics of the firm may have on the
productivity of the input resource.
D. all of the above answers are correct.
THEORY
Productivity Measures
1. A primary objective in measuring productivity is to improve operations either by using fewer
inputs to produce the same output, or to produce:
A. more effectively
C. more outputs with the same inputs
B. with fewer constraints
D. more outputs with more inputs
8. An advantage of partial measures of productivity is that it:
A. allows managers to focus on the use of a particular input.
B. is a complex measure that is difficult to interpret by everyone in the organization.
C. looks at the effect of multiple inputs.
D. is a perfect measure of performance.
2. Which of the following assesses the productivity efficiency for all inputs combined in order to
value change in productivity?
A. partial productivity measurement
C. profit-linked productivity measurement
B. profile productivity measurement
D. total productivity measurement
3. Changes in the productivity of different types of resources are NOT always:
A. measurable and observable
B. in the same direction or at an equal pace
C. unique and differentiated
D. simultaneous and positive
Total quality management
9. Characteristics of total quality management include:
A. focusing on customer satisfaction
B. striving on continuous improvement
C. involvement of the entire work force
D. All of the above are characteristics of TQM
4. How can productivity be improved?
A. using less input to produce the same output
B. using the same input to produce more output
C. improve input trade-off efficiency by using a less costly mix of inputs
D. all of the above
10. Which of the following is not an important principle of TQM?
A. The organization should focus on improving goods from the consumer's viewpoint
B. Everyone in the organization is required to participate
C. There should be a system of planning, controlling, and decision making
D. Complacency is the norm
5. One major problem in measuring productivity in not-for-profit organizations is the absence of
revenue as the:
A. common measure for inputs
B. common measure for outputs
C. basis for financial reporting
D. common denominator with commercial firms
11. Total quality management directs management attention to the relationship between the
internal production/service process and the:
A. CEO of the competition
C. activity analysis
B. ultimate customer
D. control charts
12. Continuous improvement is synonymous with:
A. process benchmarking
C. management by objectives
B. total quality management
D. management by exception
6. Productivity increases if:
A. less output is produced with more input.
B. the same output is produced with more input.
C. the same output is produced with fewer inputs.
13. Which of the following describes the zero defects view?
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Cost Accounting Systems
(D. Product Quality and Productivity/ Total Quality Management)
A.
B.
C.
D.
it permits a predetermined level of defective units to be produced
it is the level where the number of defects allowed minimizes total cost.
it is the level where there are no defects.
all of the above.
distribution
B. research and development, design, supply, production, marketing, distribution, customer
service
C. research and development, design, supply, production, marketing, customer service,
distribution
D. supply, research and development, design, production, marketing, distribution, customer
service
Statistical process control
14. A technique by which companies analyze fluctuations in a process is called:
A. statistical process control
C. benchmarking
B. a quality audit
D. Pareto analysis
Process value analysis
20. A tool that focuses on manufacturing processes and seeks to reduce or optimize the activities
performed within the process is
A. process value analysis
C. caveat analysis
B. re-engineering
D. benchmarking
Process benchmarking
15. Focusing on how best in class companies achieve their results is referred to as:
A. reverse engineering
C. process benchmarking
B. results benchmarking
D. competitive benchmarking
21. A tool that compares how tasks are performed internally with the best practices of industry
leaders is
A. process value analysis
C. caveat analysis
B. re-engineering
D. benchmarking
Total quality control
16. The goal of total quality control is
A. to have less defective material than good material
B . to permit defects as long as they do not exceed a certain level
C. to have zero defect
D. both b and c
22. Attempting to determine why activities are performed and how well they are performed is a
goal of
A. process value analysis
B. both traditional and activity-based costing systems
C. computer-integrated manufacturing systems
D. just-in-time manufacturing
Cost of Quality Report
17. Regardless of the differences in form and control, a common feature that should be present in
any Cost of Quality Report is that the report:
A. promotes total quality management (TQM)
B. stratifies costs by product line
C. stratifies costs by plant
D. stratifies costs by division
Value Engineering
18. Value engineering can result in
A. product redesign
B. changes in materials specifications
Process Re-engineering
23. An approach to developing new ways to perform existing activities is called
A. process value analysis
C. caveat analysis
B. re-engineering
D. benchmarking
24. A danger in Process Reengineering is that:
A. non-value-9added activities may be eliminated.
B. some resources may no longer be required.
C. employee morale may suffer.
D. all of the above.
C. modifications in process methods
D. all of the above
Value chain
19. Which of the following is the correct sequence of the value chain?
A. design, research and development, production, supply, marketing, customer service,
Quality Costs
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Cost Accounting Systems
(D. Product Quality and Productivity/ Total Quality Management)
Prevention cost
25. Costs incurred to improve product quality by precluding product defects are known as:
A. internal failure costs
C. appraisal costs
B. external failure costs
D. prevention cost
26. Worker training is a(n)
A. appraisal cost.
B. external failure cost.
C. internal failure cost.
D. prevention cost.
27. An example of a control cost is:
A. supplier evaluation and selection
B. scrap
C. cost of recalling products
D. all of the above
Analysis
33. If a company has high failure costs, the best course of action to reduce total quality costs
would be to increase
A. prevention costs
C. the cost of non-compliance
B. the costs associated with compliance
D. appraisal costs
Value-added & non-value added costs
Non-value added costs
34. The costs caused by inefficiency in prevention activities are:
A. nonvalued-added costs
B. value-added costs
C. neither nonvalued-added or value-added costs
D. both nonvalued-added or value-added costs
Appraisal cost
28. The quality costs that are incurred to determine whether particular units of product meet
quality standards are
A. appraisal costs.
C. internal failure costs.
B. external failure costs.
D. prevention costs.
PROBLEMS
Productivity Ratios
i. Jetters Company manufactured 100,000 motors for dehumidifiers and used 20,000 direct labor
hours. The selling price of each motor is P25 and the labor cost is P10 per hour. The labor
productivity ratio is:
A. P10
C. 4 motors per hour
B. P12.50
D. 2.5 motors per hour
Internal failure cost
29. The cost of downtime on machines while rework is being performed is a(n)
A. appraisal cost.
C. internal failure cost.
B. external failure cost.
D. prevention cost.
Productivity-linked increase in gross profit
ii. At the end of 2006, Duabi Corporation implemented a new labor process and redesigned its
product with the expectation that input usage efficiency would increase. Now, at the end of
2007, the president of the company wants an assessment of the changes on the company's
productivity. The data needed for the assessment are as follows:
2006
2007
Output
30,000
38,000
Output prices
P12
P12
Materials (lbs.)
10,000
10,400
Materials unit price
P8
P7
Labor hours
14,000
15,000
Labor rate per hour
P6
P7
Power (KwH)
12,000
13,000
Price per KwH
P3
P4
30. The costs of reworking defective units to make them saleable are classified as
A. appraisal costs
C. internal failure costs
B. external failure costs
D. prevention costs
External failure cost
31. Which of the following represents an external failure cost?
A. reprocessing a defective product before shipment
B. replacing a defective product after shipment
C. hiring for quality
D. inspecting products during production
32. Sales returns and allowances due to a quality deficiency is an example of:
A. external failure costs
C. internal failure costs
B. appraisal costs
D. prevention cost
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Cost Accounting Systems
(D. Product Quality and Productivity/ Total Quality Management)
By how much did profits change as a result of productivity changes in materials?
A. P 13,000 decrease
C. P 23,400 decrease
B. P 15,870 increase
D. P 20,800 increase
B. P92,500
v. What is the amount of external failure costs?
A. P35,000
C. P50,000
B. P85,000
D. P67,500
Price-recovery component
iii. At the end of 2006, Alban Company implemented a new labor process and redesigned its
product with the expectation that input usage efficiency would increase. Now, at the end of
2007, the president of the company wants an assessment of the changes on the company's
productivity. The data needed for the assessment are as follows:
2006
2007
Output
10,000
12,000
Output prices
P10
P10
Change in profits
P10,700
Profit-linked measurements:
Materials
P4,600
Labor
3,250
Power
(250)
Net
P7,600
How much is the price-recovery component?
A. P 3,100
C. P10,700
B. P( 1,350)
D. P 7,600
Use the following information to answer questions 39 through 41:
Testing
Rework
Training
Product liability insurance
Quality planning
Customer surveys
Reinspection and retesting
Warranty repairs
Total quality costs
vi. If Kurt Company is able to reduce quality costs to 2.5 percent of sales, what will happen to
profits?
A. Decrease by P25,000
C. Decrease by P293,000
B. Increase by P268,000
D. Increase by P25,000
ANSWER EXPLANATIONS
i.
Answer: B
Labor productivity ratios are operational measure (100,000/20,000 = 5 motors per hour) or
financial measure [(25 * 100,000)/(20,000 * 10) = P12.50).
ii. Answer: B
Material productivity ratio, 2006: (30,000 ÷ 10,000)
3
Actual materials (lbs), 2007
10,400
Required lbs. based on 2006: (38,000 ÷ 3)
12,667
Savings in number of pounds
2,267
Material productivity-linked to profit: (2,267 x P7) P15,870
P 60,000
27,500
45,000
35,000
43,000
15,000
17,500
50,000
P293,000
iii. Answer: A
Price recovery component:
Change in Profits:
Deduct profit-linked productivity change
Price recovery component
Sales for 2005 were P1,000,000
iv. What is the amount of appraisal costs?
A. P60,000
D. P75,000
C. P32,500
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iv. Answer: D
Testing
Customer surveys
Total appraisal costs
P60,000
15,000
P75,000
v. Answer: B
Product liability insurance
P35,000
P10,700
7,600
P 3,100
Cost Accounting Systems
(D. Product Quality and Productivity/ Total Quality Management)
Warranty repairs
Total external costs
50,000
P85,000
vi. Answer: B
Current quality costs
Less proposed quality costs: (0.025 x P1M)
Cost savings (increase in profits)
P293,000
25,000
P268,000
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