Chapter 11--Strategic Cost Management
Chapter 11--Strategic Cost
Management
Student: ___________________________________________________________________________
1. A competitive advantage has been established when
A. customers see the variation as important and the value added to the customer exceeds the cost of providing
differentiation.
B. a high-cost strategy increases customer value by minimizing customer sacrifices.
C. a low-profit item is dropped from the product line.
D. both a and b.
2. _______________ involves choosing among alternative strategies with the goal of selecting a strategy or
strategies that provides a company with reasonable assurance of long-term growth and survival.
A. Strategic decision making
B. Strategic cost management
C. Competitive advantage
D. Customer value
3. ______________ is creating better customer value for the same or lower cost than competitors or creating
equivalent value for lower cost than offered by competitors.
A. Strategic decision making
B. Strategic cost management
C. Competitive advantage
D. Total product
4. _______________ is the difference between what a customer receives and what the customer gives up.
A. Strategic decision making
B. Strategic cost management
C. Competitive advantage
D. Customer value
5. The total product is the complete range of _______________ that a customer receives from a purchased
product.
A. tangible benefits
B. intangible benefits
C. activity
D. both a and b
6. _______________ is the use of cost data to develop and identify superior strategies that will produce a
sustainable competitive advantage.
A. Strategic decision making
B. Strategic cost management
C. Competitive advantage
D. Customer value
7. When a computer company maintains the internal storage space for a lower price, it is following a
A. focusing strategy.
B. cost leadership strategy.
C. differentiation strategy.
D. strategic positioning strategy.
8. When a computer company increases the internal storage space for the same price, it is following a
A. focusing strategy.
B. low-cost strategy.
C. differentiation strategy.
D. strategic positioning strategy.
9. When a computer company targets customers in the South, it is following a
A. focusing strategy.
B. low-cost strategy.
C. differentiation strategy.
D. strategic allocation strategy.
10. When a computer company selects a mix of strategies in order to create sustainable competitive advantage,
it is following a
A. focusing strategy.
B. low-cost strategy.
C. differentiation strategy.
D. strategic positioning strategy.
11. The industrial value-chain analysis
A. recognizes only complex linkages within the firm.
B. is not compatible with differentiation strategies.
C. determines a linked set of value-creating activities.
D. requires a firm to operate across the entire value chain.
12. _______________ describe the relationships of a firm's value chain activities that are performed with its
suppliers and customers.
A. External linkages
B. Internal linkages
C. Industrial value chain
D. Both a and b
13. _______________ are relationships among activities that are performed with a firm's portion of the value
chain.
A. External linkages
B. Internal linkages
C. Industrial value chain
D. Both a and b
14. When a computer manufacturing company addresses supplier production problems, it is focusing on
A. external linkages.
B. internal linkages.
C. a differentiation strategy.
D. a cost leadership strategy.
15. _______________ are structural and executional factors that determine the long-term cost structure of an
organization.
A. Organizational activities
B. Organizational cost drivers
C. Operational activities
D. Operational cost drivers
16. Structural and executional activities are types of
A. organizational activities.
B. operating activities.
C. JIT.
D. both a and b.
17. Building plants, management structuring, and grouping employees are examples of
A. executional activities.
B. structural activities.
C. operational activities.
D. both a and b.
18. Plant layout, quality management systems, and providing capacity are examples of
A. executional activities.
B. structural activities.
C. operational activities.
D. both a and b.
19. The operational activity of moving inventory is classified as a
A. unit-level activity.
B. batch-level activity.
C. product-level activity.
D. facility-level activity.
20. _______________ are those factors that drive the cost of day-to-day activities performed as a result of the
structure and processes selected by the organization.
A. Organizational activities
B. Organizational cost drivers
C. Operational activities
D. Operational cost drivers
21. The operational activity of setting up equipment is classified as a
A. unit-level activity.
B. batch-level activity.
C. product-level activity.
D. facility-level activity.
22. The operational activity of assembling parts is an example of a
A. unit-level activity.
B. batch-level activity.
C. product-level activity.
D. facility-level activity.
23. The operational activity of inspecting is classified as a
A. unit-level activity.
B. batch-level activity.
C. product-level activity.
D. facility-level activity.
24. The operational activity of redesigning products is classified as a
A. unit-level activity.
B. batch-level activity.
C. product-level activity.
D. facility-level activity.
25. Activities required to design, develop, produce, market, distribute, and service a product are known as
A. whole life activities.
B. value-chain activities.
C. target activities.
D. overhead.
26. The first link of the internal value chain is
A. design.
B. develop.
C. market.
D. distribute.
27. The last link of the internal value chain is
A. design.
B. service.
C. market.
D. distribute.
28. Analyzing how costs and other financial factors vary as different bundles of activities are considered to
strengthen a firm's strategic position is the process of
A. exploiting linkages.
B. design.
C. cost driver analysis.
D. distribution.
29. The industry value chain includes
A. shareholder value chain activities as well as firm activities.
B. buyer and supplier value chain activities as well as firm activities.
C. only firm activities.
D. only firm production activities.
30. Which of the following are true about total quality control?
A. Total quality control is an approach to differentiate and reduce overall quality costs.
B. Total quality control demands production of defect-free products.
C. Total quality control links suppliers closely with the firm.
D. All of these statements are true about total quality control.
31. In activity-based costing, supplier costs
A. must be narrower, including only the purchase price.
B. are allocated to products arbitrarily.
C. include costs of quality, reliability and timeliness and are assigned to products on a causal basis.
D. all of these statements are true.
32. Identifying profitable and unprofitable customers is an example of exploiting
A. supplier linkages.
B. the product life cycle.
C. consumable life.
D. customer linkages.
33. Figure 11-1
Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30
parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for
the 30 unit configuration and expected activity demand for the 9 part configuration are provided below:
Activities
Materials
usage
Assembly
Purchasing parts
Activity
Activity Capacity
Current
Driver
Activity Demand
number of parts 300,000
300,000
Expected
Activity Demand
90,000
direct labor
20,000
hours
number of orders 20,000
20,000
6,000
16,000
8,000
Materials usage has a rate of $5 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires
clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
Refer to Figure 11-1. What is the savings in materials usage cost with the new design changes?
A. $210,000
B. $1,050,000
C. $1,500,000
D. $400,000
34. Figure 11-1
Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30
parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for
the 30 unit configuration and expected activity demand for the 9 part configuration are provided below:
Activities
Materials
usage
Assembly
Purchasing parts
Activity
Activity Capacity
Current
Driver
Activity Demand
number of parts 300,000
300,000
Expected
Activity Demand
90,000
direct labor
20,000
hours
number of orders 20,000
20,000
6,000
16,000
8,000
Materials usage has a rate of $5 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires
clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
Refer to Figure 11-1. What is the cost savings from purchasing parts?
A. $88,000
B. $80,000
C. $48,000
D. $40,000
35. Figure 11-1
Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30
parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for
the 30 unit configuration and expected activity demand for the 9 part configuration are provided below:
Activities
Materials
usage
Assembly
Purchasing parts
Activity
Activity Capacity
Current
Driver
Activity Demand
number of parts 300,000
300,000
Expected
Activity Demand
90,000
direct labor
20,000
hours
number of orders 20,000
20,000
6,000
16,000
8,000
Materials usage has a rate of $5 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires
clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
Refer to Figure 11-1. What is the total cost reduction of the new design?
A. $1,998,000
B. $1,984,000
C. $1,414,000
D. $1,418,000
36. Figure 11-1
Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30
parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for
the 30 unit configuration and expected activity demand for the 9 part configuration are provided below:
Activities
Materials
usage
Assembly
Purchasing parts
Activity
Activity Capacity
Current
Driver
Activity Demand
number of parts 300,000
300,000
Expected
Activity Demand
90,000
direct labor
20,000
hours
number of orders 20,000
20,000
6,000
16,000
8,000
Materials usage has a rate of $5 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires
clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
Refer to Figure 11-1. If 10,000 units are being produced and the sales price is $500, what is the new sales price if the cost savings are passed on to
the consumer?
A. $91.80
B. $280.20
C. $300.20
D. $199.80
37. Figure 11-2
Vibro Company sells a product used in many manufacturing processes. The sales activity involves three activity
areas:
Activity Area
Order taking
Sales visits
Delivery vehicles
Cost Driver and Rate
$100 per purchase order
$50 per visit
$1 per delivery mile
The following customer information is given:
AX
100,000
$50
$45
30
6
100
Units sold
List price
Actual sales price
Number of purchase orders
Number of sales visits
Number of delivery miles
BY
80,000
$50
$48
20
5
80
DZ
60,000
$50
$50
10
3
60
Refer to Figure 11-2. Which customer is most profitable?
A. AX
B. BY
C. DZ
D. They are equally profitable.
38. Figure 11-2
Vibro Company sells a product used in many manufacturing processes. The sales activity involves three activity
areas:
Activity Area
Order taking
Sales visits
Delivery vehicles
Cost Driver and Rate
$100 per purchase order
$50 per visit
$1 per delivery mile
The following customer information is given:
Units sold
List price
Actual sales price
Number of purchase orders
Number of sales visits
Number of delivery miles
Refer to Figure 11-2. Which customer has the least activity costs?
A. AX
B. BY
C. DZ
D. They are the same.
AX
100,000
$50
$45
30
6
100
BY
80,000
$50
$48
20
5
80
DZ
60,000
$50
$50
10
3
60
39. Figure 11-2
Vibro Company sells a product used in many manufacturing processes. The sales activity involves three activity
areas:
Activity Area
Order taking
Sales visits
Delivery vehicles
Cost Driver and Rate
$100 per purchase order
$50 per visit
$1 per delivery mile
The following customer information is given:
AX
100,000
$50
$45
30
6
100
Units sold
List price
Actual sales price
Number of purchase orders
Number of sales visits
Number of delivery miles
BY
80,000
$50
$48
20
5
80
DZ
60,000
$50
$50
10
3
60
Refer to Figure 11-2. What is the profitability of customer BY?
A. $4,000,000
B. $3,840,000
C. $3,837,670
D. $2,330,000
40. Figure 11-3
Vitella Company manufactures a product sold to retailers. It is considering suppliers for its process. The
supplier quality involves four activity areas:
Activity Area
Order cost
Defective units
Delivery trips
Carrying cost
Cost Driver and Rate
$125 per purchase order
$200 per unit internal failure costs
$5 per delivery mile
$1 per order
The following supplier information is given:
Materials units needed
Actual purchase price
Number of purchase orders
Number of defects
Number of deliveries
X3
100,000
$5
20
6
20
Y2
100,000
$4.99
30
12
30
Z1
100,000
$5.01
18
0
18
Refer to Figure 11-3. Which supplier is least costly?
A. X3
B. Y2
C. Z1
D. They are equally costly.
41. Figure 11-3
Vitella Company manufactures a product sold to retailers. It is considering suppliers for its process. The
supplier quality involves four activity areas:
Activity Area
Order cost
Defective units
Delivery trips
Carrying cost
Cost Driver and Rate
$125 per purchase order
$200 per unit internal failure costs
$5 per delivery mile
$1 per order
The following supplier information is given:
X3
100,000
$5
20
6
20
Materials units needed
Actual purchase price
Number of purchase orders
Number of defects
Number of deliveries
Y2
100,000
$4.99
30
12
30
Z1
100,000
$5.01
18
0
18
Refer to Figure 11-3. Which supplier has the most defective units?
A. X3
B. Y2
C. Z1
D. They are equal.
42. Figure 11-3
Vitella Company manufactures a product sold to retailers. It is considering suppliers for its process. The
supplier quality involves four activity areas:
Activity Area
Order cost
Defective units
Delivery trips
Carrying cost
Cost Driver and Rate
$125 per purchase order
$200 per unit internal failure costs
$5 per delivery mile
$1 per order
The following supplier information is given:
Materials units needed
Actual purchase price
Number of purchase orders
Number of defects
Number of deliveries
X3
100,000
$5
20
6
20
Y2
100,000
$4.99
30
12
30
Refer to Figure 11-3. What is the cost of supplier Z1?
A. $503,358
B. $501,000
C. $498,642
D. $499,000
43. _______________ is the length of time that a product serves the needs of customers.
A. Product life cycle
B. Revenue producing life
C. Consumable life
D. Introduction stage
44. _______________ is the time a product exists—from conception to abandonment.
A. Product life cycle
B. Revenue producing life
C. Consumable life
D. Introduction stage
45. The _______________ is when the product loses market acceptance.
A. introduction stage
B. growth stage
C. maturity stage
D. decline stage
46. The _______________ is a period of time when sales increase at a decreasing rate.
A. introduction stage
B. growth stage
C. maturity stage
D. decline stage
Z1
100,000
$5.01
18
0
18
47. The _______________ is characterized by preproduction and startup activities.
A. introduction stage
B. growth stage
C. maturity stage
D. decline stage
48. The _______________ is a period of time when sales increase at an increasing rate.
A. introduction stage
B. growth stage
C. maturity stage
D. decline stage
49. _______________ describes the general sales pattern of a product as it passes through the introduction,
growth, maturity, and decline stages.
A. Accounting viewpoint
B. Customer viewpoint
C. Production viewpoint
D. Marketing viewpoint
50. _______________ defines stages of the life cycle by changes in the type of activities performed.
A. Accounting viewpoint
B. Customer viewpoint
C. Production viewpoint
D. Marketing viewpoint
51. Which of the following is NOT a stage of the marketing viewpoint of the product life cycle?
A. decline
B. growth
C. maturity
D. production
52. Which stage in the marketing viewpoint is characterized by preproduction and startup activities?
A. decline
B. introduction
C. growth
D. maturity
53. Which of the following is NOT a stage of the consumable life-cycle viewpoint?
A. disposal
B. maintaining
C. logistics
D. purchasing
54. Life-cycle cost management consists of
A. actions taken to enable a product to be designed, developed, produced, marketed, distributed, operated,
maintained, serviced, and disposed of in order to maximize profits.
B. actions to extend the life of a product through design, development, production, and maintenance.
C. actions that focus on minimizing the cost of developing, designing, producing, distributing, operating,
servicing, and disposal of a product.
D. actions taken to design, develop, test, market, distribute, maintain, service, and dispose of a product to
maximize revenues.
55. Which of the following is NOT a stage of the production life-cycle viewpoint?
A. design
B. introduction
C. research
D. testing
56. Which of the following is NOT a stage of the production life-cycle viewpoint?
A. planning
B. production
C. purchasing
D. logistics
57. Which of the life-cycle viewpoints is the revenue-oriented viewpoint?
A. consumable life-cycle viewpoint
B. production viewpoint
C. marketing viewpoint
D. planning viewpoint
58. Which of the life-cycle viewpoints is the cost-oriented viewpoint?
A. product life-cycle
B. consumable life-cycle
C. production life-cycle
D. planning life-cycle
59. Which viewpoint of the product life-cycle is customer-value oriented?
A. production life-cycle
B. marketing life-cycle
C. consumable life-cycle
D. planning life-cycle
60. Which stage of the marketing life-cycle has slow sales growth with peak sales?
A. introduction
B. growth
C. maturity
D. decline
61. At which stage of the consumable life-cycle is price sensitivity low?
A. introduction
B. growth
C. maturity
D. decline
62. Life-cycle cost management emphasizes
A. cost control.
B. cost reduction.
C. normal costing.
D. process costing.
63. According to the authors, 90 percent or more of a product's life-cycle costs are determined during
A. growth stage.
B. development stage.
C. decline stage.
D. maturity stage.
64. Information for life-cycle cost management is supported by a(n)
A. functional-based costing system.
B. activity-based costing system.
C. normal costing system.
D. all of these.
65. _______________ is the difference between the sales price needed to capture a predetermined market share
and the desired profit per unit.
A. Gross profit
B. Target cost
C. Target price
D. Both a and b
66. Figure 11-4
Brad Company developed the following budgeted life-cycle income statement for two proposed products. Each
product's life cycle is expected to be two years.
Sales
Cost of goods sold
Gross profit
Period expenses:
Research and development
Marketing
Life-cycle income
Product A
$200,000
120,000
$ 80,000
Product B
$200,000
130,000
$ 70,000
Total
$400,000
250,000
$150,000
(70,000)
(50,000)
$ 30,000
A 10 percent return on sales is required for new products. Because the proposed products did not have a 10 percent return on sales, the products were
going to be dropped.
Relative to Product B, Product A requires more research and development costs but fewer resources to market the product. Sixty percent of the
research and development costs are traceable to Product A, and 30 percent of the marketing costs are traceable to Product A.
Refer to Figure 11-4. If research and development costs and marketing costs are traced to each product, life-cycle income for Product A would be
A. $38,000.
B. $27,000.
C. $23,000.
D. $15,000.
67. Figure 11-4
Brad Company developed the following budgeted life-cycle income statement for two proposed products. Each
product's life cycle is expected to be two years.
Sales
Cost of goods sold
Gross profit
Period expenses:
Research and development
Marketing
Life-cycle income
Product A
$200,000
120,000
$ 80,000
Product B
$200,000
130,000
$ 70,000
Total
$400,000
250,000
$150,000
(70,000)
(50,000)
$ 30,000
A 10 percent return on sales is required for new products. Because the proposed products did not have a 10 percent return on sales, the products were
going to be dropped.
Relative to Product B, Product A requires more research and development costs but fewer resources to market the product. Sixty percent of the
research and development costs are traceable to Product A, and 30 percent of the marketing costs are traceable to Product A.
If research and development costs and marketing costs are traced to each product, life-cycle income for Product B would be
A. $35,000.
B. $20,000.
C. $12,000.
D. $7,000.
68. Figure 11-4
Brad Company developed the following budgeted life-cycle income statement for two proposed products. Each
product's life cycle is expected to be two years.
Sales
Cost of goods sold
Gross profit
Period expenses:
Research and development
Marketing
Life-cycle income
Product A
$200,000
120,000
$ 80,000
Product B
$200,000
130,000
$ 70,000
Total
$400,000
250,000
$150,000
(70,000)
(50,000)
$ 30,000
A 10 percent return on sales is required for new products. Because the proposed products did not have a 10 percent return on sales, the products were
going to be dropped.
Relative to Product B, Product A requires more research and development costs but fewer resources to market the product. Sixty percent of the
research and development costs are traceable to Product A, and 30 percent of the marketing costs are traceable to Product A.
Refer to Figure 11-4. Return on sales for Product A would be
A. 40.0%.
B. 25.0%.
C. 11.5%.
D. 2.5%.
69. Courteous Company developed the following budgeted life-cycle income statement for two proposed
products. Each product's life cycle is expected to be two years.
Sales
Cost of goods sold
Gross profit
Period expenses:
Research and development
Marketing
Life-cycle income
Product AA
$400,000
300,000
$100,000
Product BB
$350,000
200,000
$150,000
Total
$750,000
500,000
$250,000
(100,000)
(75,000)
$ 75,000
A 12 percent return on sales is required for new products. Because the proposed products did not have a 12 percent return on sales, the products were
going to be dropped.
Relative to Product BB, Product AA requires more research and development costs but fewer resources to market the product. Sixty-five percent of
the research and development costs are traceable to Product AA, and 40 percent of the marketing costs are traceable to Product AA.
If research and development costs and marketing costs are traced to each product, life-cycle income for Product AA would be
A. $3,000.
B. $5,000.
C. $35,000.
D. $100,000.
70. Courteous Company developed the following budgeted life-cycle income statement for two proposed
products. Each product's life cycle is expected to be two years.
Sales
Cost of goods sold
Gross profit
Period expenses:
Research and development
Marketing
Life-cycle income
Product AA
$400,000
300,000
$100,000
Product BB
$350,000
200,000
$150,000
Total
$750,000
500,000
$250,000
(100,000)
(75,000)
$ 75,000
A 12 percent return on sales is required for new products. Because the proposed products did not have a 12 percent return on sales, the products were
going to be dropped.
Relative to Product BB, Product AA requires more research and development costs but fewer resources to market the product. Sixty-five percent of
the research and development costs are traceable to Product AA, and 40 percent of the marketing costs are traceable to Product AA.
If research and development costs and marketing costs are traced to each product, life-cycle income for Product BB would be
A. $70,000.
B. $90,000.
C. $105,000.
D. $150,000.
71. Chris Company sells a product for $225 per unit. Its market share is 20 percent. The marketing manager
feels that the market share can be increased to 30 percent with a reduction in price to $195. The product is
currently earning a profit of $36 per unit. The president of Chris Company feels that the $36 profit per unit must
be maintained. What is the target price per unit?
A. $225
B. $195
C. $189
D. $159
72. Chris Company sells a product for $225 per unit. Its market share is 20 percent. The marketing manager
feels that the market share can be increased to 30 percent with a reduction in price to $195. The product is
currently earning a profit of $36 per unit. The president of Chris Company feels that the $36 profit per unit must
be maintained. What is the original cost per unit?
A. $225
B. $195
C. $189
D. $159
73. Chris Company sells a product for $225 per unit. Its market share is 20 percent. The marketing manager
feels that the market share can be increased to 30 percent with a reduction in price to $195. The product is
currently earning a profit of $36 per unit. The president of Chris Company feels that the $36 profit per unit must
be maintained. What is the target cost per unit?
A. $225
B. $195
C. $189
D. $159
74. Rudy Company sells a product for $450 per unit. Its market share is 25 percent. The marketing manager
feels that the market share can be increased to 33 percent with a reduction in price to $390. The product is
currently earning a profit of $72 per unit. The president of Rudy Company feels that the $72 profit per unit must
be maintained. What is the target price per unit?
A. $390
B. $450
C. $318
D. $378
75. Rudy Company sells a product for $450 per unit. Its market share is 25 percent. The marketing manager
feels that the market share can be increased to 33 percent with a reduction in price to $390. The product is
currently earning a profit of $72 per unit. The president of Rudy Company feels that the $72 profit per unit must
be maintained. What is the original cost per unit?
A. $390
B. $450
C. $318
D. $378
76. ____________ manufacturing reduces inventory levels because production is geared to demand.
A. Traditional
B. Conventional
C. JIT
D. Both a and b
77. Which of the following is a trait of a JIT system?
A. push-through system
B. significant inventory
C. buyers' market
D. large supplier base
78. JIT manufacturing differs from traditional manufacturing in all of the following ways EXCEPT
A. the treatment of direct materials and direct labor for product costing.
B. the level of inventories.
C. the approach to quality control.
D. the physical layout of the manufacturing process.
79. Traditional manufacturing uses which of the following philosophies of quality control?
A. zero defects
B. total quality control
C. acceptable quality level
D. both a and b
80. Which of the following is a trait of a traditional manufacturing system?
A. push-through system
B. value-chain focus
C. total quality control
D. high employee involvement
81. Which of the following is NOT a trait of a traditional manufacturing system?
A. push-through system
B. short-term supplier contracts
C. value-added focus
D. total quality control
82. 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 defects.
D. both b and c.
83. The ___________________ approach to quality control strives for zero defects.
A. acceptable quality level
B. total quality control
C. traditional
D. both a and c
84. ___________________ is the traditional approach of permitting defects to occur as long as they do NOT
exceed a certain level.
A. Acceptable quality level
B. Zero defects
C. Total quality control
D. Both a and c
85. Which of the following is NOT a trait of a JIT system?
A. acceptable quality level
B. long-term contracts
C. multi-skilled labor
D. high employee involvement
86. JIT manufacturing uses which of the following philosophies of quality control?
A. just-in-case (JIC)
B. acceptable quality level (AQL)
C. total quality control (TQC)
D. both a and c
87. If traditional manufacturing is used, which of the following is considered direct costs?
A. setup costs
B. direct labor
C. maintenance of machinery
D. inspection costs
88. In a JIT manufacturing environment, product-costing information is used mainly for all of the following
EXCEPT
A. product costing of inventory for financial reporting purposes.
B. pricing decisions.
C. product profitability analysis.
D. make-or-buy decisions.
89. Which of the following manufacturing costs is assigned to products in a traditional environment using direct
tracing?
A. supervision
B. materials
C. repairs and maintenance
D. energy
90. Which of the following manufacturing costs is assigned to products in a traditional and JIT environment
using direct tracing?
A. direct materials
B. direct labor
C. operating supplies
D. both a and b
91. If JIT manufacturing is used and each manufacturing cell produces a single product, all of the following are
considered direct product costs EXCEPT
A. overtime wages for cell workers.
B. the salary of the plant supervisor.
C. the salary of the cell supervisor.
D. all of these.
92. If JIT manufacturing is used and each manufacturing cell produces a single product, which of the following
is considered a direct product cost?
A. inspection costs
B. materials
C. setup costs
D. all of these
93. Which of the following manufacturing costs is assigned to products in a traditional and JIT environment
using allocation?
A. insurance and taxes
B. direct labor
C. supervision (department)
D. custodial services
94. Which of the following manufacturing costs is assigned to products in JIT environment using direct
tracing?
A. material handling
B. repairs and maintenance
C. custodial services
D. all of these
95. Which of the following manufacturing costs is assigned to products in a traditional environment using driver
tracing?
A. direct labor
B. direct materials
C. energy
D. indirect labor
96. Which of the following manufacturing costs is assigned to products in a JIT environment using allocation?
A. cafeteria services
B. equipment depreciation
C. insurance and taxes
D. operating supplies
97. Prior to installing a JIT system, Reilly Company used machine hours to assign maintenance costs to its three
products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $420,000 per year. The
machine hours used by each product and the quantity produced of each product are as follows:
4-inch
6-inch
9-inch
Machine Hours
6,000
10,000
8,000
Quantity Produced
15,000 rolls
12,500 rolls
11,200 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $420,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 9-inch
The maintenance cost per roll of 4-inch insulation before JIT is installed would be
A. $12.00.
B. $8.75.
C. $7.00.
D. $6.58.
$110,000
150,000
160,000
98. Prior to installing a JIT system, Reilly Company used machine hours to assign maintenance costs to its three
products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $420,000 per year. The
machine hours used by each product and the quantity produced of each product are as follows:
4-inch
6-inch
9-inch
Machine Hours
6,000
10,000
8,000
Quantity Produced
15,000 rolls
12,500 rolls
11,200 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $420,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 9-inch
$110,000
150,000
160,000
The maintenance cost per roll of 9-inch insulation before JIT is installed would be
A. $8.75.
B. $12.50.
C. $17.50.
D. $37.50.
99. Prior to installing a JIT system, Reilly Company used machine hours to assign maintenance costs to its three
products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $420,000 per year. The
machine hours used by each product and the quantity produced of each product are as follows:
4-inch
6-inch
9-inch
Machine Hours
6,000
10,000
8,000
Quantity Produced
15,000 rolls
12,500 rolls
11,200 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $420,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 9-inch
After installing JIT, the maintenance cost per roll of 6-inch insulation is
A. $6.67.
B. $12.00.
C. $10.85.
D. $15.00.
$110,000
150,000
160,000
100. Prior to installing a JIT system, Clark Company used machine hours to assign maintenance costs to its
three products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $400,000 per year. The
machine hours used by each product and the quantity produced of each product are as follows:
4-inch
6-inch
9-inch
Machine Hours
12,000
20,000
18,000
Quantity Produced
31,250 rolls
25,000 rolls
12,000 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $400,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 9-inch
$100,000
120,000
180,000
The maintenance cost per roll of 6-inch insulation before JIT is installed would be
A. $6.40.
B. $9.33.
C. $16.00.
D. $20.00.
101. Prior to installing a JIT system, Clark Company used machine hours to assign maintenance costs to its
three products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $400,000 per year. The
machine hours used by each product and the quantity produced of each product are as follows:
4-inch
6-inch
9-inch
Machine Hours
12,000
20,000
18,000
Quantity Produced
31,250 rolls
25,000 rolls
12,000 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $400,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 9-inch
After installing JIT, the maintenance cost per roll of 4-inch insulation would be
A. $1.28.
B. $2.56.
C. $2.84.
D. $3.20.
$100,000
120,000
180,000
102. Prior to installing a JIT system, Clark Company used machine hours to assign maintenance costs to its
three products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $400,000 per year. The
machine hours used by each product and the quantity produced of each product are as follows:
Machine Hours
12,000
20,000
18,000
4-inch
6-inch
9-inch
Quantity Produced
31,250 rolls
25,000 rolls
12,000 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $400,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 9-inch
$100,000
120,000
180,000
After installing JIT, the maintenance cost per roll of 9-inch insulation would be
A. $15.00.
B. $12.86.
C. $12.50.
D. $5.86.
103. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $40,000.
Materials were placed into production.
Actual direct labor costs were $6,000.
Actual overhead costs were $40,000.
Conversion costs applied were $42,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
What will be the entry to record material purchases using the traditional approach?
A. Materials and In Process Inventory
Accounts Payable
B. Materials Inventory
Accounts Payable
C. Accounts Payable
Materials and In Process Inventory
D. Accounts Payable
Materials Inventory
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
104. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $40,000.
Materials were placed into production.
Actual direct labor costs were $6,000.
Actual overhead costs were $40,000.
Conversion costs applied were $42,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
What will be the entry to record material purchases using the backflush approach?
A. Materials and In Process Inventory
Accounts Payable
B. Materials Inventory
Accounts Payable
C. Accounts Payable
Materials and In Process Inventory
D. Accounts Payable
Materials Inventory
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
105. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $40,000.
Materials were placed into production.
Actual direct labor costs were $6,000.
Actual overhead costs were $40,000.
Conversion costs applied were $42,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
What will be the entry to record material placed into production using the traditional approach?
A. Materials and In Process Inventory
Work-in-process Inventory
B. Materials Inventory
Accounts Payable
C. Work-in-Process Inventory
Materials and In Process Inventory
D. Work-in-Process Inventory
Materials Inventory
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
106. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $40,000.
Materials were placed into production.
Actual direct labor costs were $6,000.
Actual overhead costs were $40,000.
Conversion costs applied were $42,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
What will be the entry to record materials placed into production using the backflush approach?
A. Materials and In Process Inventory
Work-in-process Inventory
B. Materials Inventory
Accounts Payable
C. Work-in-Process Inventory
Materials and In Process Inventory
D. No entry is required
40,000
40,000
40,000
40,000
40,000
40,000
107. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $40,000.
Materials were placed into production.
Actual direct labor costs were $6,000.
Actual overhead costs were $40,000.
Conversion costs applied were $42,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
Which of the following would NOT be an entry under the backflush system, assuming the second trigger point is the completion of goods?
A. Materials and In Process Inventory
Accounts Payable
B. Work-in-Process Inventory
Materials Inventory
C. Conversion Cost Control
Wages Payable
Accounts Payable
D. Cost of Goods Sold
Finished Goods Inventory
40,000
40,000
40,000
40,000
46,000
6,000
40,000
82,000
82,000
108. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $50,000.
Materials were placed into production.
Actual direct labor costs were $16,000.
Actual overhead costs were $30,000.
Conversion costs applied were $52,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
What will be the entry to record material placed into production using the traditional approach?
A. Materials and In Process Inventory
Work-in-Process Inventory
B. Materials Inventory
Accounts Payable
C. Work-n-Process Inventory
Materials and In Process Inventory
D. Work-in-Process Inventory
Materials Inventory
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
109. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $50,000.
Materials were placed into production.
Actual direct labor costs were $16,000.
Actual overhead costs were $30,000.
Conversion costs applied were $52,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
What will be the entry to record materials placed into production using the backflush approach?
A. Materials and in Process Inventory
Work-in-Process Inventory
B. Materials Inventory
Accounts Payable
C. Work-in-Process Inventory
Materials and in Process Inventory
D. No entry is required
50,000
50,000
50,000
50,000
50,000
50,000
110. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $50,000.
Materials were placed into production.
Actual direct labor costs were $16,000.
Actual overhead costs were $30,000.
Conversion costs applied were $52,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
Which of the following would NOT be an entry under the backflush system, assuming the second trigger point is the completion of goods?
A. Materials and In Process Inventory
Accounts Payable
B. Work-in-Process Inventory
Materials Inventory
C. Conversion Cost Control
Wages Payable
Accounts Payable
D. Cost of Goods Sold
Finished Goods Inventory
50,000
50,000
50,000
50,000
46,000
16,000
30,000
102,000
102,000
111. Bill Jones has decided to purchase a fax machine. He has narrowed the choice to two: Brand A and Brand
B. Both brands have the same transmitting speed and use the same type of paper. Both come from companies
with good reputations. The selling price for each is identical. After some review, Bill discovers that the cost of
operating and maintaining Brand A over a three-year period is estimated to be $300. For Brand B, the operating
and maintenance cost is $150. The sales agent for Brand B emphasizes the lower operating and maintenance
cost. She claims that it is lower than any other fax machine. In addition, she provides Bill with a copy of an
article appearing in a PC magazine that rates service performance of various fax machines. Brand B is rated
number one.
Required:
a.
b.
c.
Which brand should Bill buy? Why?
What is the total product purchased by Bill?
What does it mean to obtain a competitive advantage? What role does the cost management system play in helping to achieve this goal?
112. Fonda Company has a traditional, unit-based cost system. The Minneapolis plant of Fonda produces eight
different electronic products. Each year, 100,000 units of all products are produced. The demand for each
product is about the same; thus, the average output for each product is 12,500 units. Although the products
differ in complexity, each product uses about the same labor time and materials. The plant has used direct labor
hours for years to assign overhead to products. The cost accounting department developed the following cost
equation to help design engineers understand the assumed cost relationships. (The equation describes the
relationship between total manufacturing costs and direct labor hours. The equation is supported by a coefficient
of determination of 63 percent):
Y = $5,000,000 + $50X where X is the number of direct labor hours
The variable rate of $50 is broken down as follows:
Direct labor
Variable overhead
Direct materials
$16
8
26
Because of competitive pressures, product engineering was asked to redesign products to reduce the total cost of manufacturing. Using the above cost
relationships, product engineering adopted the strategy of redesigning to reduce direct labor content. As each design was completed, an engineering
change order was cut, triggering a series of events such as design approval, vendor selection, bill of materials update, redrawing of schematic, test
runs, changes in setup procedures, development of new inspection procedures, and so on.
After one year of design change, the normal volume of direct labor was reduced from 125,000 hours to 100,000 hours, with the 100,000 units being
built. Although each product differs in its labor content, the redesign efforts reduced the labor content for all products. On average, labor content per
unit of product dropped from 1.25 hours per unit to 1 hour per unit. Fixed overhead, however, increased from $5,000,000 to $6,000,000.
Required:
a.
Using normal volume, compute the manufacturing cost per labor hour before the design changes. What is the cost per unit of an "average"
product?
b.
Using the normal volume after the one year of design changes, compute the manufacturing cost per hour. What is the cost per unit of an
"average" product?
113. Hillary Corp. is a manufacturer of equipment used in automobile production. It currently produces a
product with 15 parts but through redesign has reduced the number of parts to 5. Then current activity capacity
and demand for the 15 part configuration and expected activity demand for the 5 part configuration are provided
below:
Activities
Materials
usage
Assembly
Purchasing parts
Activity
Activity Capacity
Current
Driver
Activity Demand
number of parts 300,000
300,000
Expected
Activity Demand
100,000
direct labor
10,000
hours
number of orders 10,000
10,000
4,000
8,000
6,000
Materials usage has a rate of $4 per part and no fixed costs. Assembly has a rate of $15 per labor our with no fixed component. Purchasing requires
clerks that can process 5000 purchase orders. Each clerk earns $35,000 per year. There is also a $2 per order processing cost. The product sells for
$45 and 50,000 units will be produced.
Required:
1. What is the total cost savings from the new design?
2. What is the new sales price if the cost savings are passed on to the customer?
114. Etro Company sells a product used in many manufacturing processes. The sales activity involves three
activity areas:
Activity Area
Order taking
Sales visits
Delivery vehicles
Product handling
Special runs
Cost Driver and Rate
$100 per purchase order
$50 per visit
$1 per delivery mile
$0.05 a unit
$300 per run
The following customer information is given:
Units sold
List price
Actual sales price
Number of purchase orders
Number of sales visits
Number of deliveries
Miles traveled per delivery
Number of special runs
A
100,000
$50
$45
30
6
10
40
1
B
80,000
$50
$48
20
5
8
5
0
D
60,000
$50
$50
10
3
6
20
2
Required:
What is the profitability of customer B?
115. Todd Corporation sells a product for $400 per unit. Its market share is 22 percent of the units sold. The
marketing manager feels that the market share can be increased to 28 percent of the units sold with a reduction
in price to $340. The product is currently earning a profit of $64 per unit. The president of Todd Corporation
feels that his company needs to maintain the same profit level per unit. The market share consists of $4,000,000
(10,000 units).
Required:
a.
b.
c.
d.
How many units does Todd Corporation currently sell of the product?
What is the target price per unit?
What is the original cost per unit?
What is the target cost per unit?
116. Spencer Manufacturing Company sells a product for $200 per unit. Its market share is 18 percent of the
units sold. The marketing manager feels that the market share can be increased to 25 percent of the units sold
with a reduction in price to $170. The product is currently earning a profit of $32 per unit. The president of
Spencer Manufacturing Company feels that his company needs to maintain the same profit level per unit. The
market share consists of $2,000,000 (10,000 units).
Required:
a.
b.
c.
d.
Of the market share of $2,000,000, how much is attributable to Spencer Manufacturing?
What is the target price per unit?
What is the original cost per unit?
What is the target cost per unit?
117. Hank Stover, president of Stover Industries, had just completed examining a projected profit summary for
two components that would be used in televisions. Both units were still in a very preliminary planning stage,
and a decision had to be made regarding their continued viability. The components would be developed,
produced, and sold at the same time. Each product's life cycle is 40 months. The projected profit performance of
the two items promised a return on sales of 10 percent—less than the 14 percent rate set by company standards.
From the statements below, it appeared to Hank that the culprit was Component 402 because its gross profit
percentage was much lower than that of Component 401.
Sales
Cost of goods sold
Gross profit
Research and development
Selling expenses
Profit before taxes
401
$500,000
250,000
$250,000
402
$500,000
350,000
$150,000
Total
$1,000,000
600,000
$ 400,000
(230,000)
(70,000)
$ 100,000
Required:
a.
Explain why Hank may be wrong in his assessment of the relative performances of the two products. What change in the company's lifecycle budgeting approach would you suggest?
b.
Suppose that 75 percent of the research and development and 75 percent of the selling expenses are traceable to Component 401. Prepare
budgeted life-cycle income statements for each product and calculate the return on sales. What does this tell you about the importance of
accurate life-cycle budgeting?
118. Explain the difference between acceptable quality level and total quality control.
119. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $50,000.
Materials were placed into production.
Actual direct labor costs were $10,000.
Actual overhead costs were $40,000.
Conversion costs applied were $34,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
Required:
a.
Provide the journal entries for the above transactions assuming the traditional approach was used.
b.
Provide the journal entries for a backflush system assuming the second trigger point is the point when goods are completed.
120. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $60,000.
Materials were placed into production.
Actual direct labor costs were $14,000.
Actual overhead costs were $50,000.
Conversion costs applied were $54,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
Required:
a.
Provide the journal entries for the above transactions assuming the traditional approach was used.
b.
Provide the journal entries for a backflush system assuming the second trigger point is the point when goods are sold.
121. Prior to installing a JIT system, Charlotte Company used machine hours to assign maintenance costs to its
three products of 4-inch, 6-inch, and 8-inch plastic pipe.
The maintenance costs totaled $120,000 per year. The machine hours used by each product and the quantity
produced of each product are as follows:
Machine Hours
1,000
1,500
2,500
4-inch
6-inch
8-inch
Quantity Produced
400 rolls
450 rolls
1,250 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $120,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 8-inch
$18,000
31,500
70,500
Required:
a.
b.
c.
Compute the maintenance cost per roll for each type of pipe before JIT is installed.
Compute the maintenance cost per roll for each type of pipe after JIT is installed.
Explain why the JIT maintenance cost per roll is more accurate than the cost per roll using the traditional approach.
122. Prior to installing a JIT system, Johnson Company used machine hours to assign maintenance costs to its
three products of 4-inch, 6-inch, and 8-inch plastic pipe.
The maintenance costs totaled $540,000 per year. The machine hours used by each product and the quantity
produced of each product are as follows:
Machine Hours
10,000
14,000
21,000
4-inch
6-inch
8-inch
Quantity Produced
3,750 rolls
4,000 rolls
5,000 rolls
After installing JIT, three manufacturing cells were created, and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $540,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 8-inch
Required:
a.
b.
c.
Compute the maintenance cost per roll for each type of pipe before JIT is installed.
Compute the maintenance cost per roll for each type of pipe after JIT is installed.
Explain why the JIT maintenance cost per roll is more accurate than the cost per roll using the traditional approach.
$ 90,000
160,000
290,000
123. Quickie Company recently implemented a JIT system and is considering implementing a backflush costing
system. Following are the transactions for the first quarter of the year.
1.
2.
3.
4.
5.
purchased raw materials on account for $375,000
all materials were received and placed into production
actual labor costs of $75,000 were incurred
actual overhead costs of $425,000 were incurred
conversion costs of $480,000 were applied to production as conversion costs
are recognized quarterly
6. all work was completed for the month
7. all completed work was sold
8. the difference between applied costs and actual costs was determined
Required:
1.
2.
Prepare journal entries using variation 2 of backflush costing.
Prepare journal entries using variation 4 of backflush costing.
Chapter 11--Strategic Cost Management Key
1. A competitive advantage has been established when
A. customers see the variation as important and the value added to the customer exceeds the cost of providing
differentiation.
B. a high-cost strategy increases customer value by minimizing customer sacrifices.
C. a low-profit item is dropped from the product line.
D. both a and b.
2. _______________ involves choosing among alternative strategies with the goal of selecting a strategy or
strategies that provides a company with reasonable assurance of long-term growth and survival.
A. Strategic decision making
B. Strategic cost management
C. Competitive advantage
D. Customer value
3. ______________ is creating better customer value for the same or lower cost than competitors or creating
equivalent value for lower cost than offered by competitors.
A. Strategic decision making
B. Strategic cost management
C. Competitive advantage
D. Total product
4. _______________ is the difference between what a customer receives and what the customer gives up.
A. Strategic decision making
B. Strategic cost management
C. Competitive advantage
D. Customer value
5. The total product is the complete range of _______________ that a customer receives from a purchased
product.
A. tangible benefits
B. intangible benefits
C. activity
D. both a and b
6. _______________ is the use of cost data to develop and identify superior strategies that will produce a
sustainable competitive advantage.
A. Strategic decision making
B. Strategic cost management
C. Competitive advantage
D. Customer value
7. When a computer company maintains the internal storage space for a lower price, it is following a
A. focusing strategy.
B. cost leadership strategy.
C. differentiation strategy.
D. strategic positioning strategy.
8. When a computer company increases the internal storage space for the same price, it is following a
A. focusing strategy.
B. low-cost strategy.
C. differentiation strategy.
D. strategic positioning strategy.
9. When a computer company targets customers in the South, it is following a
A. focusing strategy.
B. low-cost strategy.
C. differentiation strategy.
D. strategic allocation strategy.
10. When a computer company selects a mix of strategies in order to create sustainable competitive advantage,
it is following a
A. focusing strategy.
B. low-cost strategy.
C. differentiation strategy.
D. strategic positioning strategy.
11. The industrial value-chain analysis
A. recognizes only complex linkages within the firm.
B. is not compatible with differentiation strategies.
C. determines a linked set of value-creating activities.
D. requires a firm to operate across the entire value chain.
12. _______________ describe the relationships of a firm's value chain activities that are performed with its
suppliers and customers.
A. External linkages
B. Internal linkages
C. Industrial value chain
D. Both a and b
13. _______________ are relationships among activities that are performed with a firm's portion of the value
chain.
A. External linkages
B. Internal linkages
C. Industrial value chain
D. Both a and b
14. When a computer manufacturing company addresses supplier production problems, it is focusing on
A. external linkages.
B. internal linkages.
C. a differentiation strategy.
D. a cost leadership strategy.
15. _______________ are structural and executional factors that determine the long-term cost structure of an
organization.
A. Organizational activities
B. Organizational cost drivers
C. Operational activities
D. Operational cost drivers
16. Structural and executional activities are types of
A. organizational activities.
B. operating activities.
C. JIT.
D. both a and b.
17. Building plants, management structuring, and grouping employees are examples of
A. executional activities.
B. structural activities.
C. operational activities.
D. both a and b.
18. Plant layout, quality management systems, and providing capacity are examples of
A. executional activities.
B. structural activities.
C. operational activities.
D. both a and b.
19. The operational activity of moving inventory is classified as a
A. unit-level activity.
B. batch-level activity.
C. product-level activity.
D. facility-level activity.
20. _______________ are those factors that drive the cost of day-to-day activities performed as a result of the
structure and processes selected by the organization.
A. Organizational activities
B. Organizational cost drivers
C. Operational activities
D. Operational cost drivers
21. The operational activity of setting up equipment is classified as a
A. unit-level activity.
B. batch-level activity.
C. product-level activity.
D. facility-level activity.
22. The operational activity of assembling parts is an example of a
A. unit-level activity.
B. batch-level activity.
C. product-level activity.
D. facility-level activity.
23. The operational activity of inspecting is classified as a
A. unit-level activity.
B. batch-level activity.
C. product-level activity.
D. facility-level activity.
24. The operational activity of redesigning products is classified as a
A. unit-level activity.
B. batch-level activity.
C. product-level activity.
D. facility-level activity.
25. Activities required to design, develop, produce, market, distribute, and service a product are known as
A. whole life activities.
B. value-chain activities.
C. target activities.
D. overhead.
26. The first link of the internal value chain is
A. design.
B. develop.
C. market.
D. distribute.
27. The last link of the internal value chain is
A. design.
B. service.
C. market.
D. distribute.
28. Analyzing how costs and other financial factors vary as different bundles of activities are considered to
strengthen a firm's strategic position is the process of
A. exploiting linkages.
B. design.
C. cost driver analysis.
D. distribution.
29. The industry value chain includes
A. shareholder value chain activities as well as firm activities.
B. buyer and supplier value chain activities as well as firm activities.
C. only firm activities.
D. only firm production activities.
30. Which of the following are true about total quality control?
A. Total quality control is an approach to differentiate and reduce overall quality costs.
B. Total quality control demands production of defect-free products.
C. Total quality control links suppliers closely with the firm.
D. All of these statements are true about total quality control.
31. In activity-based costing, supplier costs
A. must be narrower, including only the purchase price.
B. are allocated to products arbitrarily.
C. include costs of quality, reliability and timeliness and are assigned to products on a causal basis.
D. all of these statements are true.
32. Identifying profitable and unprofitable customers is an example of exploiting
A. supplier linkages.
B. the product life cycle.
C. consumable life.
D. customer linkages.
33. Figure 11-1
Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30
parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for
the 30 unit configuration and expected activity demand for the 9 part configuration are provided below:
Activities
Materials
usage
Assembly
Purchasing parts
Activity
Activity Capacity
Current
Driver
Activity Demand
number of parts 300,000
300,000
Expected
Activity Demand
90,000
direct labor
20,000
hours
number of orders 20,000
20,000
6,000
16,000
8,000
Materials usage has a rate of $5 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires
clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
Refer to Figure 11-1. What is the savings in materials usage cost with the new design changes?
A. $210,000
B. $1,050,000
C. $1,500,000
D. $400,000
34. Figure 11-1
Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30
parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for
the 30 unit configuration and expected activity demand for the 9 part configuration are provided below:
Activities
Materials
usage
Assembly
Purchasing parts
Activity
Activity Capacity
Current
Driver
Activity Demand
number of parts 300,000
300,000
Expected
Activity Demand
90,000
direct labor
20,000
hours
number of orders 20,000
20,000
6,000
16,000
8,000
Materials usage has a rate of $5 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires
clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
Refer to Figure 11-1. What is the cost savings from purchasing parts?
A. $88,000
B. $80,000
C. $48,000
D. $40,000
35. Figure 11-1
Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30
parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for
the 30 unit configuration and expected activity demand for the 9 part configuration are provided below:
Activities
Materials
usage
Assembly
Purchasing parts
Activity
Activity Capacity
Current
Driver
Activity Demand
number of parts 300,000
300,000
Expected
Activity Demand
90,000
direct labor
20,000
hours
number of orders 20,000
20,000
6,000
16,000
8,000
Materials usage has a rate of $5 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires
clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
Refer to Figure 11-1. What is the total cost reduction of the new design?
A. $1,998,000
B. $1,984,000
C. $1,414,000
D. $1,418,000
36. Figure 11-1
Clinton Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30
parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for
the 30 unit configuration and expected activity demand for the 9 part configuration are provided below:
Activities
Materials
usage
Assembly
Purchasing parts
Activity
Activity Capacity
Current
Driver
Activity Demand
number of parts 300,000
300,000
Expected
Activity Demand
90,000
direct labor
20,000
hours
number of orders 20,000
20,000
6,000
16,000
8,000
Materials usage has a rate of $5 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires
clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
Refer to Figure 11-1. If 10,000 units are being produced and the sales price is $500, what is the new sales price if the cost savings are passed on to
the consumer?
A. $91.80
B. $280.20
C. $300.20
D. $199.80
37. Figure 11-2
Vibro Company sells a product used in many manufacturing processes. The sales activity involves three activity
areas:
Activity Area
Order taking
Sales visits
Delivery vehicles
Cost Driver and Rate
$100 per purchase order
$50 per visit
$1 per delivery mile
The following customer information is given:
Units sold
List price
Actual sales price
Number of purchase orders
Number of sales visits
Number of delivery miles
Refer to Figure 11-2. Which customer is most profitable?
A. AX
B. BY
C. DZ
D. They are equally profitable.
AX
100,000
$50
$45
30
6
100
BY
80,000
$50
$48
20
5
80
DZ
60,000
$50
$50
10
3
60
38. Figure 11-2
Vibro Company sells a product used in many manufacturing processes. The sales activity involves three activity
areas:
Activity Area
Order taking
Sales visits
Delivery vehicles
Cost Driver and Rate
$100 per purchase order
$50 per visit
$1 per delivery mile
The following customer information is given:
AX
100,000
$50
$45
30
6
100
Units sold
List price
Actual sales price
Number of purchase orders
Number of sales visits
Number of delivery miles
BY
80,000
$50
$48
20
5
80
DZ
60,000
$50
$50
10
3
60
Refer to Figure 11-2. Which customer has the least activity costs?
A. AX
B. BY
C. DZ
D. They are the same.
39. Figure 11-2
Vibro Company sells a product used in many manufacturing processes. The sales activity involves three activity
areas:
Activity Area
Order taking
Sales visits
Delivery vehicles
Cost Driver and Rate
$100 per purchase order
$50 per visit
$1 per delivery mile
The following customer information is given:
Units sold
List price
Actual sales price
Number of purchase orders
Number of sales visits
Number of delivery miles
AX
100,000
$50
$45
30
6
100
BY
80,000
$50
$48
20
5
80
DZ
60,000
$50
$50
10
3
60
Refer to Figure 11-2. What is the profitability of customer BY?
A. $4,000,000
B. $3,840,000
C. $3,837,670
D. $2,330,000
40. Figure 11-3
Vitella Company manufactures a product sold to retailers. It is considering suppliers for its process. The
supplier quality involves four activity areas:
Activity Area
Order cost
Defective units
Delivery trips
Carrying cost
Cost Driver and Rate
$125 per purchase order
$200 per unit internal failure costs
$5 per delivery mile
$1 per order
The following supplier information is given:
Materials units needed
Actual purchase price
Number of purchase orders
Number of defects
Number of deliveries
X3
100,000
$5
20
6
20
Y2
100,000
$4.99
30
12
30
Z1
100,000
$5.01
18
0
18
Refer to Figure 11-3. Which supplier is least costly?
A. X3
B. Y2
C. Z1
D. They are equally costly.
41. Figure 11-3
Vitella Company manufactures a product sold to retailers. It is considering suppliers for its process. The
supplier quality involves four activity areas:
Activity Area
Order cost
Defective units
Delivery trips
Carrying cost
Cost Driver and Rate
$125 per purchase order
$200 per unit internal failure costs
$5 per delivery mile
$1 per order
The following supplier information is given:
X3
100,000
$5
20
6
20
Materials units needed
Actual purchase price
Number of purchase orders
Number of defects
Number of deliveries
Y2
100,000
$4.99
30
12
30
Z1
100,000
$5.01
18
0
18
Refer to Figure 11-3. Which supplier has the most defective units?
A. X3
B. Y2
C. Z1
D. They are equal.
42. Figure 11-3
Vitella Company manufactures a product sold to retailers. It is considering suppliers for its process. The
supplier quality involves four activity areas:
Activity Area
Order cost
Defective units
Delivery trips
Carrying cost
Cost Driver and Rate
$125 per purchase order
$200 per unit internal failure costs
$5 per delivery mile
$1 per order
The following supplier information is given:
Materials units needed
Actual purchase price
Number of purchase orders
Number of defects
Number of deliveries
X3
100,000
$5
20
6
20
Y2
100,000
$4.99
30
12
30
Refer to Figure 11-3. What is the cost of supplier Z1?
A. $503,358
B. $501,000
C. $498,642
D. $499,000
43. _______________ is the length of time that a product serves the needs of customers.
A. Product life cycle
B. Revenue producing life
C. Consumable life
D. Introduction stage
Z1
100,000
$5.01
18
0
18
44. _______________ is the time a product exists—from conception to abandonment.
A. Product life cycle
B. Revenue producing life
C. Consumable life
D. Introduction stage
45. The _______________ is when the product loses market acceptance.
A. introduction stage
B. growth stage
C. maturity stage
D. decline stage
46. The _______________ is a period of time when sales increase at a decreasing rate.
A. introduction stage
B. growth stage
C. maturity stage
D. decline stage
47. The _______________ is characterized by preproduction and startup activities.
A. introduction stage
B. growth stage
C. maturity stage
D. decline stage
48. The _______________ is a period of time when sales increase at an increasing rate.
A. introduction stage
B. growth stage
C. maturity stage
D. decline stage
49. _______________ describes the general sales pattern of a product as it passes through the introduction,
growth, maturity, and decline stages.
A. Accounting viewpoint
B. Customer viewpoint
C. Production viewpoint
D. Marketing viewpoint
50. _______________ defines stages of the life cycle by changes in the type of activities performed.
A. Accounting viewpoint
B. Customer viewpoint
C. Production viewpoint
D. Marketing viewpoint
51. Which of the following is NOT a stage of the marketing viewpoint of the product life cycle?
A. decline
B. growth
C. maturity
D. production
52. Which stage in the marketing viewpoint is characterized by preproduction and startup activities?
A. decline
B. introduction
C. growth
D. maturity
53. Which of the following is NOT a stage of the consumable life-cycle viewpoint?
A. disposal
B. maintaining
C. logistics
D. purchasing
54. Life-cycle cost management consists of
A. actions taken to enable a product to be designed, developed, produced, marketed, distributed, operated,
maintained, serviced, and disposed of in order to maximize profits.
B. actions to extend the life of a product through design, development, production, and maintenance.
C. actions that focus on minimizing the cost of developing, designing, producing, distributing, operating,
servicing, and disposal of a product.
D. actions taken to design, develop, test, market, distribute, maintain, service, and dispose of a product to
maximize revenues.
55. Which of the following is NOT a stage of the production life-cycle viewpoint?
A. design
B. introduction
C. research
D. testing
56. Which of the following is NOT a stage of the production life-cycle viewpoint?
A. planning
B. production
C. purchasing
D. logistics
57. Which of the life-cycle viewpoints is the revenue-oriented viewpoint?
A. consumable life-cycle viewpoint
B. production viewpoint
C. marketing viewpoint
D. planning viewpoint
58. Which of the life-cycle viewpoints is the cost-oriented viewpoint?
A. product life-cycle
B. consumable life-cycle
C. production life-cycle
D. planning life-cycle
59. Which viewpoint of the product life-cycle is customer-value oriented?
A. production life-cycle
B. marketing life-cycle
C. consumable life-cycle
D. planning life-cycle
60. Which stage of the marketing life-cycle has slow sales growth with peak sales?
A. introduction
B. growth
C. maturity
D. decline
61. At which stage of the consumable life-cycle is price sensitivity low?
A. introduction
B. growth
C. maturity
D. decline
62. Life-cycle cost management emphasizes
A. cost control.
B. cost reduction.
C. normal costing.
D. process costing.
63. According to the authors, 90 percent or more of a product's life-cycle costs are determined during
A. growth stage.
B. development stage.
C. decline stage.
D. maturity stage.
64. Information for life-cycle cost management is supported by a(n)
A. functional-based costing system.
B. activity-based costing system.
C. normal costing system.
D. all of these.
65. _______________ is the difference between the sales price needed to capture a predetermined market share
and the desired profit per unit.
A. Gross profit
B. Target cost
C. Target price
D. Both a and b
66. Figure 11-4
Brad Company developed the following budgeted life-cycle income statement for two proposed products. Each
product's life cycle is expected to be two years.
Sales
Cost of goods sold
Gross profit
Period expenses:
Research and development
Marketing
Life-cycle income
Product A
$200,000
120,000
$ 80,000
Product B
$200,000
130,000
$ 70,000
Total
$400,000
250,000
$150,000
(70,000)
(50,000)
$ 30,000
A 10 percent return on sales is required for new products. Because the proposed products did not have a 10 percent return on sales, the products were
going to be dropped.
Relative to Product B, Product A requires more research and development costs but fewer resources to market the product. Sixty percent of the
research and development costs are traceable to Product A, and 30 percent of the marketing costs are traceable to Product A.
Refer to Figure 11-4. If research and development costs and marketing costs are traced to each product, life-cycle income for Product A would be
A. $38,000.
B. $27,000.
C. $23,000.
D. $15,000.
67. Figure 11-4
Brad Company developed the following budgeted life-cycle income statement for two proposed products. Each
product's life cycle is expected to be two years.
Sales
Cost of goods sold
Gross profit
Period expenses:
Research and development
Marketing
Life-cycle income
Product A
$200,000
120,000
$ 80,000
Product B
$200,000
130,000
$ 70,000
Total
$400,000
250,000
$150,000
(70,000)
(50,000)
$ 30,000
A 10 percent return on sales is required for new products. Because the proposed products did not have a 10 percent return on sales, the products were
going to be dropped.
Relative to Product B, Product A requires more research and development costs but fewer resources to market the product. Sixty percent of the
research and development costs are traceable to Product A, and 30 percent of the marketing costs are traceable to Product A.
If research and development costs and marketing costs are traced to each product, life-cycle income for Product B would be
A. $35,000.
B. $20,000.
C. $12,000.
D. $7,000.
68. Figure 11-4
Brad Company developed the following budgeted life-cycle income statement for two proposed products. Each
product's life cycle is expected to be two years.
Sales
Cost of goods sold
Gross profit
Period expenses:
Research and development
Marketing
Life-cycle income
Product A
$200,000
120,000
$ 80,000
Product B
$200,000
130,000
$ 70,000
Total
$400,000
250,000
$150,000
(70,000)
(50,000)
$ 30,000
A 10 percent return on sales is required for new products. Because the proposed products did not have a 10 percent return on sales, the products were
going to be dropped.
Relative to Product B, Product A requires more research and development costs but fewer resources to market the product. Sixty percent of the
research and development costs are traceable to Product A, and 30 percent of the marketing costs are traceable to Product A.
Refer to Figure 11-4. Return on sales for Product A would be
A. 40.0%.
B. 25.0%.
C. 11.5%.
D. 2.5%.
69. Courteous Company developed the following budgeted life-cycle income statement for two proposed
products. Each product's life cycle is expected to be two years.
Sales
Cost of goods sold
Gross profit
Period expenses:
Research and development
Marketing
Life-cycle income
Product AA
$400,000
300,000
$100,000
Product BB
$350,000
200,000
$150,000
Total
$750,000
500,000
$250,000
(100,000)
(75,000)
$ 75,000
A 12 percent return on sales is required for new products. Because the proposed products did not have a 12 percent return on sales, the products were
going to be dropped.
Relative to Product BB, Product AA requires more research and development costs but fewer resources to market the product. Sixty-five percent of
the research and development costs are traceable to Product AA, and 40 percent of the marketing costs are traceable to Product AA.
If research and development costs and marketing costs are traced to each product, life-cycle income for Product AA would be
A. $3,000.
B. $5,000.
C. $35,000.
D. $100,000.
70. Courteous Company developed the following budgeted life-cycle income statement for two proposed
products. Each product's life cycle is expected to be two years.
Sales
Cost of goods sold
Gross profit
Period expenses:
Research and development
Marketing
Life-cycle income
Product AA
$400,000
300,000
$100,000
Product BB
$350,000
200,000
$150,000
Total
$750,000
500,000
$250,000
(100,000)
(75,000)
$ 75,000
A 12 percent return on sales is required for new products. Because the proposed products did not have a 12 percent return on sales, the products were
going to be dropped.
Relative to Product BB, Product AA requires more research and development costs but fewer resources to market the product. Sixty-five percent of
the research and development costs are traceable to Product AA, and 40 percent of the marketing costs are traceable to Product AA.
If research and development costs and marketing costs are traced to each product, life-cycle income for Product BB would be
A. $70,000.
B. $90,000.
C. $105,000.
D. $150,000.
71. Chris Company sells a product for $225 per unit. Its market share is 20 percent. The marketing manager
feels that the market share can be increased to 30 percent with a reduction in price to $195. The product is
currently earning a profit of $36 per unit. The president of Chris Company feels that the $36 profit per unit must
be maintained. What is the target price per unit?
A. $225
B. $195
C. $189
D. $159
72. Chris Company sells a product for $225 per unit. Its market share is 20 percent. The marketing manager
feels that the market share can be increased to 30 percent with a reduction in price to $195. The product is
currently earning a profit of $36 per unit. The president of Chris Company feels that the $36 profit per unit must
be maintained. What is the original cost per unit?
A. $225
B. $195
C. $189
D. $159
73. Chris Company sells a product for $225 per unit. Its market share is 20 percent. The marketing manager
feels that the market share can be increased to 30 percent with a reduction in price to $195. The product is
currently earning a profit of $36 per unit. The president of Chris Company feels that the $36 profit per unit must
be maintained. What is the target cost per unit?
A. $225
B. $195
C. $189
D. $159
74. Rudy Company sells a product for $450 per unit. Its market share is 25 percent. The marketing manager
feels that the market share can be increased to 33 percent with a reduction in price to $390. The product is
currently earning a profit of $72 per unit. The president of Rudy Company feels that the $72 profit per unit must
be maintained. What is the target price per unit?
A. $390
B. $450
C. $318
D. $378
75. Rudy Company sells a product for $450 per unit. Its market share is 25 percent. The marketing manager
feels that the market share can be increased to 33 percent with a reduction in price to $390. The product is
currently earning a profit of $72 per unit. The president of Rudy Company feels that the $72 profit per unit must
be maintained. What is the original cost per unit?
A. $390
B. $450
C. $318
D. $378
76. ____________ manufacturing reduces inventory levels because production is geared to demand.
A. Traditional
B. Conventional
C. JIT
D. Both a and b
77. Which of the following is a trait of a JIT system?
A. push-through system
B. significant inventory
C. buyers' market
D. large supplier base
78. JIT manufacturing differs from traditional manufacturing in all of the following ways EXCEPT
A. the treatment of direct materials and direct labor for product costing.
B. the level of inventories.
C. the approach to quality control.
D. the physical layout of the manufacturing process.
79. Traditional manufacturing uses which of the following philosophies of quality control?
A. zero defects
B. total quality control
C. acceptable quality level
D. both a and b
80. Which of the following is a trait of a traditional manufacturing system?
A. push-through system
B. value-chain focus
C. total quality control
D. high employee involvement
81. Which of the following is NOT a trait of a traditional manufacturing system?
A. push-through system
B. short-term supplier contracts
C. value-added focus
D. total quality control
82. 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 defects.
D. both b and c.
83. The ___________________ approach to quality control strives for zero defects.
A. acceptable quality level
B. total quality control
C. traditional
D. both a and c
84. ___________________ is the traditional approach of permitting defects to occur as long as they do NOT
exceed a certain level.
A. Acceptable quality level
B. Zero defects
C. Total quality control
D. Both a and c
85. Which of the following is NOT a trait of a JIT system?
A. acceptable quality level
B. long-term contracts
C. multi-skilled labor
D. high employee involvement
86. JIT manufacturing uses which of the following philosophies of quality control?
A. just-in-case (JIC)
B. acceptable quality level (AQL)
C. total quality control (TQC)
D. both a and c
87. If traditional manufacturing is used, which of the following is considered direct costs?
A. setup costs
B. direct labor
C. maintenance of machinery
D. inspection costs
88. In a JIT manufacturing environment, product-costing information is used mainly for all of the following
EXCEPT
A. product costing of inventory for financial reporting purposes.
B. pricing decisions.
C. product profitability analysis.
D. make-or-buy decisions.
89. Which of the following manufacturing costs is assigned to products in a traditional environment using direct
tracing?
A. supervision
B. materials
C. repairs and maintenance
D. energy
90. Which of the following manufacturing costs is assigned to products in a traditional and JIT environment
using direct tracing?
A. direct materials
B. direct labor
C. operating supplies
D. both a and b
91. If JIT manufacturing is used and each manufacturing cell produces a single product, all of the following are
considered direct product costs EXCEPT
A. overtime wages for cell workers.
B. the salary of the plant supervisor.
C. the salary of the cell supervisor.
D. all of these.
92. If JIT manufacturing is used and each manufacturing cell produces a single product, which of the following
is considered a direct product cost?
A. inspection costs
B. materials
C. setup costs
D. all of these
93. Which of the following manufacturing costs is assigned to products in a traditional and JIT environment
using allocation?
A. insurance and taxes
B. direct labor
C. supervision (department)
D. custodial services
94. Which of the following manufacturing costs is assigned to products in JIT environment using direct
tracing?
A. material handling
B. repairs and maintenance
C. custodial services
D. all of these
95. Which of the following manufacturing costs is assigned to products in a traditional environment using driver
tracing?
A. direct labor
B. direct materials
C. energy
D. indirect labor
96. Which of the following manufacturing costs is assigned to products in a JIT environment using allocation?
A. cafeteria services
B. equipment depreciation
C. insurance and taxes
D. operating supplies
97. Prior to installing a JIT system, Reilly Company used machine hours to assign maintenance costs to its three
products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $420,000 per year. The
machine hours used by each product and the quantity produced of each product are as follows:
4-inch
6-inch
9-inch
Machine Hours
6,000
10,000
8,000
Quantity Produced
15,000 rolls
12,500 rolls
11,200 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $420,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 9-inch
$110,000
150,000
160,000
The maintenance cost per roll of 4-inch insulation before JIT is installed would be
A. $12.00.
B. $8.75.
C. $7.00.
D. $6.58.
98. Prior to installing a JIT system, Reilly Company used machine hours to assign maintenance costs to its three
products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $420,000 per year. The
machine hours used by each product and the quantity produced of each product are as follows:
4-inch
6-inch
9-inch
Machine Hours
6,000
10,000
8,000
Quantity Produced
15,000 rolls
12,500 rolls
11,200 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $420,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 9-inch
$110,000
150,000
160,000
The maintenance cost per roll of 9-inch insulation before JIT is installed would be
A. $8.75.
B. $12.50.
C. $17.50.
D. $37.50.
99. Prior to installing a JIT system, Reilly Company used machine hours to assign maintenance costs to its three
products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $420,000 per year. The
machine hours used by each product and the quantity produced of each product are as follows:
4-inch
6-inch
9-inch
Machine Hours
6,000
10,000
8,000
Quantity Produced
15,000 rolls
12,500 rolls
11,200 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $420,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 9-inch
$110,000
150,000
160,000
After installing JIT, the maintenance cost per roll of 6-inch insulation is
A. $6.67.
B. $12.00.
C. $10.85.
D. $15.00.
100. Prior to installing a JIT system, Clark Company used machine hours to assign maintenance costs to its
three products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $400,000 per year. The
machine hours used by each product and the quantity produced of each product are as follows:
4-inch
6-inch
9-inch
Machine Hours
12,000
20,000
18,000
Quantity Produced
31,250 rolls
25,000 rolls
12,000 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $400,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 9-inch
$100,000
120,000
180,000
The maintenance cost per roll of 6-inch insulation before JIT is installed would be
A. $6.40.
B. $9.33.
C. $16.00.
D. $20.00.
101. Prior to installing a JIT system, Clark Company used machine hours to assign maintenance costs to its
three products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $400,000 per year. The
machine hours used by each product and the quantity produced of each product are as follows:
4-inch
6-inch
9-inch
Machine Hours
12,000
20,000
18,000
Quantity Produced
31,250 rolls
25,000 rolls
12,000 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $400,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 9-inch
$100,000
120,000
180,000
After installing JIT, the maintenance cost per roll of 4-inch insulation would be
A. $1.28.
B. $2.56.
C. $2.84.
D. $3.20.
102. Prior to installing a JIT system, Clark Company used machine hours to assign maintenance costs to its
three products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $400,000 per year. The
machine hours used by each product and the quantity produced of each product are as follows:
4-inch
6-inch
9-inch
Machine Hours
12,000
20,000
18,000
Quantity Produced
31,250 rolls
25,000 rolls
12,000 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $400,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 9-inch
$100,000
120,000
180,000
After installing JIT, the maintenance cost per roll of 9-inch insulation would be
A. $15.00.
B. $12.86.
C. $12.50.
D. $5.86.
103. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $40,000.
Materials were placed into production.
Actual direct labor costs were $6,000.
Actual overhead costs were $40,000.
Conversion costs applied were $42,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
What will be the entry to record material purchases using the traditional approach?
A. Materials and In Process Inventory
Accounts Payable
B. Materials Inventory
Accounts Payable
C. Accounts Payable
Materials and In Process Inventory
D. Accounts Payable
Materials Inventory
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
104. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $40,000.
Materials were placed into production.
Actual direct labor costs were $6,000.
Actual overhead costs were $40,000.
Conversion costs applied were $42,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
What will be the entry to record material purchases using the backflush approach?
A. Materials and In Process Inventory
Accounts Payable
B. Materials Inventory
Accounts Payable
C. Accounts Payable
Materials and In Process Inventory
D. Accounts Payable
Materials Inventory
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
105. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $40,000.
Materials were placed into production.
Actual direct labor costs were $6,000.
Actual overhead costs were $40,000.
Conversion costs applied were $42,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
What will be the entry to record material placed into production using the traditional approach?
A. Materials and In Process Inventory
Work-in-process Inventory
B. Materials Inventory
Accounts Payable
C. Work-in-Process Inventory
Materials and In Process Inventory
D. Work-in-Process Inventory
Materials Inventory
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
106. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $40,000.
Materials were placed into production.
Actual direct labor costs were $6,000.
Actual overhead costs were $40,000.
Conversion costs applied were $42,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
What will be the entry to record materials placed into production using the backflush approach?
A. Materials and In Process Inventory
Work-in-process Inventory
B. Materials Inventory
Accounts Payable
C. Work-in-Process Inventory
Materials and In Process Inventory
D. No entry is required
40,000
40,000
40,000
40,000
40,000
40,000
107. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $40,000.
Materials were placed into production.
Actual direct labor costs were $6,000.
Actual overhead costs were $40,000.
Conversion costs applied were $42,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
Which of the following would NOT be an entry under the backflush system, assuming the second trigger point is the completion of goods?
A. Materials and In Process Inventory
Accounts Payable
B. Work-in-Process Inventory
Materials Inventory
C. Conversion Cost Control
Wages Payable
Accounts Payable
D. Cost of Goods Sold
Finished Goods Inventory
40,000
40,000
40,000
40,000
46,000
6,000
40,000
82,000
82,000
108. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $50,000.
Materials were placed into production.
Actual direct labor costs were $16,000.
Actual overhead costs were $30,000.
Conversion costs applied were $52,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
What will be the entry to record material placed into production using the traditional approach?
A. Materials and In Process Inventory
Work-in-Process Inventory
B. Materials Inventory
Accounts Payable
C. Work-n-Process Inventory
Materials and In Process Inventory
D. Work-in-Process Inventory
Materials Inventory
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
109. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $50,000.
Materials were placed into production.
Actual direct labor costs were $16,000.
Actual overhead costs were $30,000.
Conversion costs applied were $52,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
What will be the entry to record materials placed into production using the backflush approach?
A. Materials and in Process Inventory
Work-in-Process Inventory
B. Materials Inventory
Accounts Payable
C. Work-in-Process Inventory
Materials and in Process Inventory
D. No entry is required
50,000
50,000
50,000
50,000
50,000
50,000
110. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $50,000.
Materials were placed into production.
Actual direct labor costs were $16,000.
Actual overhead costs were $30,000.
Conversion costs applied were $52,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
Which of the following would NOT be an entry under the backflush system, assuming the second trigger point is the completion of goods?
A. Materials and In Process Inventory
Accounts Payable
B. Work-in-Process Inventory
Materials Inventory
C. Conversion Cost Control
Wages Payable
Accounts Payable
D. Cost of Goods Sold
Finished Goods Inventory
50,000
50,000
50,000
50,000
46,000
16,000
30,000
102,000
102,000
111. Bill Jones has decided to purchase a fax machine. He has narrowed the choice to two: Brand A and Brand
B. Both brands have the same transmitting speed and use the same type of paper. Both come from companies
with good reputations. The selling price for each is identical. After some review, Bill discovers that the cost of
operating and maintaining Brand A over a three-year period is estimated to be $300. For Brand B, the operating
and maintenance cost is $150. The sales agent for Brand B emphasizes the lower operating and maintenance
cost. She claims that it is lower than any other fax machine. In addition, she provides Bill with a copy of an
article appearing in a PC magazine that rates service performance of various fax machines. Brand B is rated
number one.
Required:
a.
b.
c.
Which brand should Bill buy? Why?
What is the total product purchased by Bill?
What does it mean to obtain a competitive advantage? What role does the cost management system play in helping to achieve this goal?
a.
Bill should buy Brand B because he will acquire more total product for his money. He will receive better service and cheaper operating
costs.
The total product consists of all tangible and intangible benefits. This includes the fax machine, its features, its operating capabilities,
maintainability, product reputation, service, and service reputation.
A competitive advantage is providing better customer value for the same or lower cost or equivalent value for lower cost. The cost
management system must provide information that helps identify strategies that will create a cost leadership position.
b.
c.
112. Fonda Company has a traditional, unit-based cost system. The Minneapolis plant of Fonda produces eight
different electronic products. Each year, 100,000 units of all products are produced. The demand for each
product is about the same; thus, the average output for each product is 12,500 units. Although the products
differ in complexity, each product uses about the same labor time and materials. The plant has used direct labor
hours for years to assign overhead to products. The cost accounting department developed the following cost
equation to help design engineers understand the assumed cost relationships. (The equation describes the
relationship between total manufacturing costs and direct labor hours. The equation is supported by a coefficient
of determination of 63 percent):
Y = $5,000,000 + $50X where X is the number of direct labor hours
The variable rate of $50 is broken down as follows:
Direct labor
Variable overhead
Direct materials
$16
8
26
Because of competitive pressures, product engineering was asked to redesign products to reduce the total cost of manufacturing. Using the above cost
relationships, product engineering adopted the strategy of redesigning to reduce direct labor content. As each design was completed, an engineering
change order was cut, triggering a series of events such as design approval, vendor selection, bill of materials update, redrawing of schematic, test
runs, changes in setup procedures, development of new inspection procedures, and so on.
After one year of design change, the normal volume of direct labor was reduced from 125,000 hours to 100,000 hours, with the 100,000 units being
built. Although each product differs in its labor content, the redesign efforts reduced the labor content for all products. On average, labor content per
unit of product dropped from 1.25 hours per unit to 1 hour per unit. Fixed overhead, however, increased from $5,000,000 to $6,000,000.
Required:
a.
Using normal volume, compute the manufacturing cost per labor hour before the design changes. What is the cost per unit of an "average"
product?
b.
Using the normal volume after the one year of design changes, compute the manufacturing cost per hour. What is the cost per unit of an
"average" product?
a.
b.
Cost per labor hour
= [$5,000,000 + ($50 ´ 125,000)]/125,000
= $90 per hour
Cost per unit of average product
= $90 ´ 1.25 = $112.50
Cost per hour
= [$6,000,000 + ($50 ´ 125,000)]/100,000
= $122.50 per hour
Cost per unit of average product
= $122.50 ´ 1 = $122.50
113. Hillary Corp. is a manufacturer of equipment used in automobile production. It currently produces a
product with 15 parts but through redesign has reduced the number of parts to 5. Then current activity capacity
and demand for the 15 part configuration and expected activity demand for the 5 part configuration are provided
below:
Activities
Materials
usage
Assembly
Purchasing parts
Activity
Activity Capacity
Current
Driver
Activity Demand
number of parts 300,000
300,000
Expected
Activity Demand
100,000
direct labor
10,000
hours
number of orders 10,000
10,000
4,000
8,000
6,000
Materials usage has a rate of $4 per part and no fixed costs. Assembly has a rate of $15 per labor our with no fixed component. Purchasing requires
clerks that can process 5000 purchase orders. Each clerk earns $35,000 per year. There is also a $2 per order processing cost. The product sells for
$45 and 50,000 units will be produced.
Required:
1. What is the total cost savings from the new design?
2. What is the new sales price if the cost savings are passed on to the customer?
M (300,000 - 100,000) $4
= $
800,000
A
(10,000 - 4,000 ) $15
= $
90,000
P
(8,000 - 6,000) $2
=
$
4,000
Total savings
$
894,000
$45 - $894,000/50,000 = $45-17.88 = $27.12
114. Etro Company sells a product used in many manufacturing processes. The sales activity involves three
activity areas:
Activity Area
Order taking
Sales visits
Delivery vehicles
Product handling
Special runs
Cost Driver and Rate
$100 per purchase order
$50 per visit
$1 per delivery mile
$0.05 a unit
$300 per run
The following customer information is given:
Units sold
List price
Actual sales price
Number of purchase orders
Number of sales visits
Number of deliveries
Miles traveled per delivery
Number of special runs
A
100,000
$50
$45
30
6
10
40
1
Required:
What is the profitability of customer B?
B = (80,000 ´ $48) - (20 ´ $100) - (5 ´ $50) - (8 ´ 5 ´ $1) - 0 = $3,837,710
B
80,000
$50
$48
20
5
8
5
0
D
60,000
$50
$50
10
3
6
20
2
115. Todd Corporation sells a product for $400 per unit. Its market share is 22 percent of the units sold. The
marketing manager feels that the market share can be increased to 28 percent of the units sold with a reduction
in price to $340. The product is currently earning a profit of $64 per unit. The president of Todd Corporation
feels that his company needs to maintain the same profit level per unit. The market share consists of $4,000,000
(10,000 units).
Required:
a.
b.
c.
d.
How many units does Todd Corporation currently sell of the product?
What is the target price per unit?
What is the original cost per unit?
What is the target cost per unit?
a.
b.
c.
d.
10,000 ´ 0.22 = 2,200
$340
$400 - $64 = $336
$340 - $64 = $276
116. Spencer Manufacturing Company sells a product for $200 per unit. Its market share is 18 percent of the
units sold. The marketing manager feels that the market share can be increased to 25 percent of the units sold
with a reduction in price to $170. The product is currently earning a profit of $32 per unit. The president of
Spencer Manufacturing Company feels that his company needs to maintain the same profit level per unit. The
market share consists of $2,000,000 (10,000 units).
Required:
a.
b.
c.
d.
Of the market share of $2,000,000, how much is attributable to Spencer Manufacturing?
What is the target price per unit?
What is the original cost per unit?
What is the target cost per unit?
a.
b.
c.
d.
$2,000,000 ´ 0.18 = $360,000
$170
$200 - $32 = $168
$170 - $32 = $138
117. Hank Stover, president of Stover Industries, had just completed examining a projected profit summary for
two components that would be used in televisions. Both units were still in a very preliminary planning stage,
and a decision had to be made regarding their continued viability. The components would be developed,
produced, and sold at the same time. Each product's life cycle is 40 months. The projected profit performance of
the two items promised a return on sales of 10 percent—less than the 14 percent rate set by company standards.
From the statements below, it appeared to Hank that the culprit was Component 402 because its gross profit
percentage was much lower than that of Component 401.
Sales
Cost of goods sold
Gross profit
Research and development
Selling expenses
Profit before taxes
401
$500,000
250,000
$250,000
402
$500,000
350,000
$150,000
Total
$1,000,000
600,000
$ 400,000
(230,000)
(70,000)
$ 100,000
Required:
a.
Explain why Hank may be wrong in his assessment of the relative performances of the two products. What change in the company's lifecycle budgeting approach would you suggest?
b.
Suppose that 75 percent of the research and development and 75 percent of the selling expenses are traceable to Component 401. Prepare
budgeted life-cycle income statements for each product and calculate the return on sales. What does this tell you about the importance of
accurate life-cycle budgeting?
a.
W
h
e
t
h
e
r
C
o
m
p
o
n
e
n
t
4
0
2
i
s
t
h
e
c
u
l
p
r
i
t
o
r
n
o
t
d
e
p
e
n
d
s
o
n
i
t
s
d
e
v
e
l
o
p
m
e
n
t
402
b.
4
0
1
Sales $$500,000
5
0
0
,
0
0
0
Cost 350,000
of
goods 2
sold 5
0
,
0
0
0
Gross $$150,000
profit
2
5
0
,
0
0
0
Trace
able
expen
ses:
Res ((57,500)
earch 1
and 7
devel 2
opme ,
nt
5
0
0
)
Sell (17,500)
ing
expen (
ses 5
2
,
5
0
0
)
Profit $$ 75,000
before
taxes
2
5
,
0
0
0
B
y
t
r
a
c
i
n
g
t
h
e
l
i
f
e
c
y
c
l
e
c
o
s
t
s
t
o
e
a
c
h
p
r
o
d
u
c
t
,
m
a
n
a
g
e
m
e
n
t
o
b
t
a
i
n
118. Explain the difference between acceptable quality level and total quality control.
Acceptable quality level and total quality control are different approaches to quality in the manufacturing
environment. Acceptable quality level permits defects to occur provided they do not exceed a predetermined
level. Acceptable quality level is associated with the traditional manufacturing approach. Total quality control
strives for a defect-free manufacturing process. The goal of total quality control is zero defects. Total quality
control is associated with JIT manufacturing.
119. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
Materials were purchased on account for $50,000.
Materials were placed into production.
Actual direct labor costs were $10,000.
Actual overhead costs were $40,000.
Conversion costs applied were $34,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
Required:
a.
Provide the journal entries for the above transactions assuming the traditional approach was used.
b.
Provide the journal entries for a backflush system assuming the second trigger point is the point when goods are completed.
a.
1.
2.
3.
4.
5.
6.
7.
8.
b.
1.
Materials Inventory
Accounts Payable
50,000
Work-in-Process Inventory
Materials Inventory
50,000
Work-in-Process Inventory
Wages Payable
10,000
Overhead Control
Various accounts
40,000
Work-in-Process Inventory
Overhead Control
34,000
Finished Goods Inventory
Work-in-Process Inventory
94,000
Cost of Goods Sold
Finished Goods Inventory
94,000
Cost of Goods Sold
Overhead Control
6,000
Materials and in Process inventory
Accounts Payable
50,000
2.
No entry
3.
Combined with overhead: see next entry
4.
Conversion Cost Control
Various accounts
Wages Payable
50,000
10,000
40,000
34,000
94,000
94,000
6,000
50,000
50,000
40,000
10,000
5.
No entry
6.
Finished Goods Inventory
Materials and in Process Inventory
Conversion Cost Control
94,000
Cost of Goods Sold
Finished Goods Inventory
94,000
Cost of Goods Sold
Conversion Cost Control
6,000
7.
8.
120. A firm that has implemented JIT had the following transactions:
1.
2.
3.
4.
5.
6.
7.
8.
50,000
Materials were purchased on account for $60,000.
Materials were placed into production.
Actual direct labor costs were $14,000.
Actual overhead costs were $50,000.
Conversion costs applied were $54,000.
All work was completed for the month.
All completed work was sold.
The variance is recognized.
50,000
44,000
94,000
6,000
Required:
a.
Provide the journal entries for the above transactions assuming the traditional approach was used.
b.
Provide the journal entries for a backflush system assuming the second trigger point is the point when goods are sold.
a.
1.
2.
3.
4.
5.
6.
7.
8.
b.
1.
Materials Inventory
Accounts Payable
60,000
Work-in-Process Inventory
Materials Inventory
60,000
Work-in-Process Inventory
Wages Payable
14,000
Overhead Control
Various accounts
50,000
Work-in-Process Inventory
Overhead Control
54,000
Finished Goods Inventory
Work-in-Process Inventory
128,000
Cost of Goods Sold
Finished Goods Inventory
128,000
Overhead Control
Cost of Goods Sold
4,000
Materials and In Process Inventory
Accounts Payable
60,000
2.
No entry
3.
Combined with overhead: See next entry
4.
Conversion Cost Control
Various accounts
Wages Payable
60,000
60,000
14,000
50,000
54,000
128,000
128,000
4,000
60,000
68,000
54,000
14,000
5.
No entry
6.
See next entry
7.
Cost of Goods Sold
Materials and In Process Inventory
Conversion Costs Control
128,000
Conversion Cost Control
Cost of Goods Sold
4,000
8.
60,000
68,000
4,000
121. Prior to installing a JIT system, Charlotte Company used machine hours to assign maintenance costs to its
three products of 4-inch, 6-inch, and 8-inch plastic pipe.
The maintenance costs totaled $120,000 per year. The machine hours used by each product and the quantity
produced of each product are as follows:
Machine Hours
1,000
1,500
2,500
4-inch
6-inch
8-inch
Quantity Produced
400 rolls
450 rolls
1,250 rolls
After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $120,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 8-inch
$18,000
31,500
70,500
Required:
a.
b.
c.
Compute the maintenance cost per roll for each type of pipe before JIT is installed.
Compute the maintenance cost per roll for each type of pipe after JIT is installed.
Explain why the JIT maintenance cost per roll is more accurate than the cost per roll using the traditional approach.
a.
$120,000/(1,000 + 1,500 + 2,500) = $24/machine hour
4-inch pipe: ($24 ´ 1,000)/400 rolls = $60 per roll
6-inch pipe: ($24 ´ 1,500)/450 rolls = $80 per roll
8-inch pipe: ($24 ´ 2,500)/1,250 rolls = $48 per roll
b.
c.
$45.00
$70.00
$56.40
$18,000/400 rolls
$31,500/450 rolls
$70,500/1,250 rolls
When JIT is used, the maintenance costs are directly traceable to the particular cell and product, resulting in more accurate cost
information.
122. Prior to installing a JIT system, Johnson Company used machine hours to assign maintenance costs to its
three products of 4-inch, 6-inch, and 8-inch plastic pipe.
The maintenance costs totaled $540,000 per year. The machine hours used by each product and the quantity
produced of each product are as follows:
4-inch
6-inch
8-inch
Machine Hours
10,000
14,000
21,000
Quantity Produced
3,750 rolls
4,000 rolls
5,000 rolls
After installing JIT, three manufacturing cells were created, and the cell workers were trained to perform maintenance. Maintenance costs for the
three cells still totaled $540,000; however, these costs are now traceable to each cell.
Cell, 4-inch
Cell, 6-inch
Cell, 8-inch
$ 90,000
160,000
290,000
Required:
a.
b.
c.
Compute the maintenance cost per roll for each type of pipe before JIT is installed.
Compute the maintenance cost per roll for each type of pipe after JIT is installed.
Explain why the JIT maintenance cost per roll is more accurate than the cost per roll using the traditional approach.
a.
$540,000 /(10,000 + 14,000 + 21,000) = $12 per machine hour
4-inch pipe: ($12 ´ 10,000)/3,750 rolls = $32.00 per roll
6-inch pipe: ($12 ´ 14,000)/4,000 rolls = $42.00 per roll
8-inch pipe: ($12 ´ 21,000)/5,000 rolls = $50.40 per roll
b.
c.
$24.00
$40.00
$58.00
$90,000/3,750 rolls
$160,000/4,000 rolls
$290,000/5,000 rolls
When JIT is used, the maintenance costs are directly traceable to the particular cell and product resulting in more accurate cost
information.
123. Quickie Company recently implemented a JIT system and is considering implementing a backflush costing
system. Following are the transactions for the first quarter of the year.
1.
2.
3.
4.
5.
purchased raw materials on account for $375,000
all materials were received and placed into production
actual labor costs of $75,000 were incurred
actual overhead costs of $425,000 were incurred
conversion costs of $480,000 were applied to production as conversion costs
are recognized quarterly
6. all work was completed for the month
7. all completed work was sold
8. the difference between applied costs and actual costs was determined
Required:
1.
2.
Prepare journal entries using variation 2 of backflush costing.
Prepare journal entries using variation 4 of backflush costing.
1.
Transaction
Raw materials purchase
Overhead incurred
Sale of goods
Variance is recognized
2.
Transaction
Overhead incurred
Sale of goods
Variance recognized
Journal entries
Raw materials in process inventory
Account payable
Conversion cost control
Wages payable
Account payable
Cost of goods sold
Raw materials in process
Conversion cost control
Cost of goods sold
Conversion cost control
Journal entries
Conversion cost control
Wages payable
Account payable
Cost of goods sold
Account payable
Conversion cost control
Cost of goods sold
Conversion cost control
$375,000
$375,000
$500,000
$ 75,000
$425,000
$855,000
$375,000
$480,000
$ 20,000
$ 20,000
$500,000
$ 75,000
$425,000
$855,000
$375,000
$480,000
$ 20,000
$ 20,000