Studied by 5 people
A decision model involves a
formal method of making a choice that often involves both quantitative and qualitative analyses
Five-step decision process
1)identify the problem of uncertainties
2)obtain info including historical costs
3)make predictions about the future
4)make decisions choosing among alternatives
5)evaluate performance to provide feedback
which of the following is NOT true with regards to relevant costs and relevant revenues
they are sunk costs and historical revenues
which of the following is an example of sunk costs
book value of equipment
John's
8−year−old
Chevrolet Trail Blazer requires repairs estimated at $11,000 to make it road worthy again. His wife, Sherry, suggested that he should buy a
5−year−old
used Jeep Grand Cherokee instead for $11,000 cash. Sherry estimated the following costs for the two cars:
Trail Blazer
Acquisition cost
$30,000
Repairs
$11,000
Annual operating costs
$2,480
Grand Cherokee
11,000
-
$2,000
What should John do? What are his savings in the first year?
Buy the Grand Cherokee, $480
In a make-or-buy decision, which of the following would not be relevant?
property taxes on the plant that will still be necessary even if the product is outsourced
An incremental cost is
an additional total cost for an activity
product mix decisions…
help determine how to maximize operating profits
with a constraining resource, managers should choose the product with the…
highest contribution margin per unit of the constraining resource
Activity based costing systems are less useful than the theory of constraints for long-run pricing, cost control, and capacity management
False
which of the following is an irrelevant cost when considering where to drop a customer?
depreciation
Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van follow:
Original cost: existing=50,000 new=92,000
annual operating cost: existing=19,500 new=14000
accumulated depr.: existing= 34,000
Current salvage value: existing=25,500
remaining life: both 9 years with 0 salvage value
Annual depr.: existing=1,778 new=10,222
sunk costs include…
the accumulated depreciation of the existing van
which of the following statements best defines strategy?
it describes how an org. can create value for its customers while differentiating itself from its competitors
which of the following statements best define a product differentiation strategy?
it is an org.’s ability to offer products or services its customers perceive to be superior and unique relative to the p/s of its competitors
an org. that is using the product differentiation approach would most likely do which of the following?
use innovative research and development and develop effective promotional campaigns to increase customer loyalty and charge higher prices
feedback on how a co. is doing from the perspectives of financial, customer, internal business processes, and learning and growth
balanced scorecard
___ is a measure of the balanced scorecard’s internal-business-process perspective
manufacturing downtime
which component of strategy measures the changes in operating income attributed solely to an increase in the quantity of output btwn year 1 and 2?
the growth component
when analyzing the change in operating income, the strategy component of price-recovery…
compares the change in output price with the changes in input prices
engineered costs…
include a high level of certainty
which of the following statements is true of engineered costs
they have a detailed, physically observable, and repetitive relationship with output
engineered costs…
are from physically observable activities and have a repetitive relationship with output
the lower the inputs for a given set of outputs or the higher the outputs for a given set of inputs, the higher the level of
productivity
in setting prices for products and services, managers may attempt to charge what the customer is willing to pay however, too high a price may…
deter a customer from purchasing a product and seek alternatives
which of the following statements is true of costs and pricing decisions?
companies supply products as long as the rev. from selling the additional units exceed the cost of producing them
which of the following are true regarding long-run pricing decisions?
use prices that include a reasonable return on invested capital
Jack's Back Porch manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $270 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Jack's Back Porch's policy to add a 60% markup to full costs.
A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Jack's Back Porch is invited to submit a bid to the hotel chain. What per unit price will Jack's Back Porch most likely bid on this long−term order?
$432/unit
which of the following costs can be classified into both value-added and non-value added costs?
production control costs
the cost-plus pricing approach is generally in the form…
cost base + markup component = prospective selling price
which of the following can be used to determine markup percentage in the case of cost-plus pricing?
Target annual operating income/invested capital
Ocean Grove Vending Company has invested $1,450,000 in a plant to make vending machines. The target operating income desired from the plant is $362,500 annually. The company plans annual sales of 1,500 vending machines at a selling price of $1,000 each.
What is the markup percentage as a percentage of cost for Ocean Grove Vending Company?
31.87%
making environmental costs is an example of life-cycle costing and value engineering
true
environmental costs that are incurred over several years of the product’s life cycle are often locked in at the product-and process-design stage
true
which of the following is an example of price discrimination?
larry’s offers a 30% discount to buyers making repeat purchases within 30 days
Troy City Inc., manufactures a product and is considering raising the price by $20 a unit for the coming year. With a $20 price increase, demand is expected to fall by 2,500 units.
Currently
demand=21,000 units
selling price=170
variable cost/unit=110
Projected
demand= 18,500 units
selling price= 190
variable costs per unit= 110
Would you recommend the $20 price increase?
yes, because operating income increases
which of the following customer related costs are NOT economically feasible to trace but are related to a customer?
the allocation of the cost of travel, lodgings, and meals that result from visiting customers at their locations
which of the following classifications would the cost of visiting customers would most likely fit into?
customer-sustaining cost
which of the following classifications would be the most appropriate for the cost of the manager of a retail distribution channel
distribution-channel cost
allocation of corporate-sustaining costs is useful for which of the following?
motivating division managers to examine how corporate costs are planned and controlled
which of the following is an example of division-sustaining costs?
research and development cost
A company has two distribution channels: wholesale and business sales. Which of the following costs would be allocated as
distribution−channel−level
costs when analyzing the profitability of customer distribution channels?
salary of the wholesale distribution channel manager
which of the following would be considered a problematic method because it could be highly subjective and happen because of a manager’s persuasiveness?
the fairness or equity criterion
using the fairness criterion, the costs are allocated among the beneficiaries in proportion to the benefits each receives
false
A company sets up cost pools for indirect cost allocation. Management sees clear cause−and−effect relationships between the incurrence of costs and the chosen the cost−allocation base. What other common relationships or basis with a cost allocation base might management utilize to allocate costs?
benefits-received
Dartmouth Building Products Inc. provides the following information.
Corporate advertising costs = $830,000
Division A − $4,900,000
Division B − $11,433,333.3
Number of ads run on Division A products 300
Number of ads run on Division B products 900
Assume that customers with higher revenues benefited more from corporate advertising costs than customers with lower revenues. What is the allocated corporate costs for Division B?
581,000
the sales-quantity variance can be decomposed into…
market-share variance and market-size variance
Market−share variance = $390,000 (U); Market−size variance = $250,000 (F); Sales−mix variance = $660,000 (F); calculate the sales−quantity variance.
140,000 (U)
The method that allocates costs in each cost pool using the same rate/unit is known as the…
single-rate cost allocation method
when using the dual-rate method, the fixed cost allocation is based on…
budgeted usage
when budgeted cost-allocations rates are used…
user departments can determine the amount of service to request and if allowed, can determine whether to use an internal or external resource
to discourage unnecessary use of a support department, management might…
allocate support department costs based upon user department usage
special cost-allocation problems arise when…
support departments provide reciprocal services to each other and operating departments
which of the following statements is true about the step-down method?
it does not recognize the total services that support departments provide to each other
Corny Solutions processes various corn related food items. One of its facilities located in Iowa, performs some initial processing of corn on the cob once it arrives from the corn fields. The corn from that facility will be further processed elsewhere into corn for popping and corn meal. The costs incurred at the Iowa plant would be considered ________.
common costs
allocating common costs can best be achieved by using the stand-alone cost-allocation method
false
cost-plus contracts negotiated with suppliers of the govt. usually involves…
the supplier’s cost to perform the contact (provide the product or service) plus a fee
the price of a bundled product is typically more than the sum of the prices of the individual products sold separately
false
A company sells a software suite that includes a word processor and spreadsheet applications. The suite sells for $270 and the items are also available separately for $175 (spreadsheet) and $145 (word processor). The spreadsheet app is by far the best seller of the standalone product sales. Using the incremental−revenue allocation method and assuming that the spreadsheet is the primary product, how much of the $270 revenue from the bundled product sale would be allocated to the spreadsheet and to the word processing products?
$175 of revenue for the spreadsheet and $95 for the word processor
which of the following is the costing system used for mass produced like or similar units of products?
process-costing systems
Process costing would most likely be used to assign costs to products produced by which of these companies?
Jones Flour Mill
The principal difference between process costing and job costing is that in job costing an averaging process is used to compute the unit costs of products or services
false
conversion costs include direct materials and direct labor but excludes all other manufacturing and non-manufacturing costs
false
Serile Pharma places 840 units in production during the month of January. All 840 units are completed during the month. It had no opening inventory. Direct material costs added during January was $106,000 and conversion costs added during January was $11,600. What is the total cost per unit of the product produced during January?
$140
The purpose of the equivalent-unit computation is to…
use a common metric to estimate the amt of work done on units in a period
Which of the following is true regarding estimates of completion of units in a process costing system?
estimating the degree of completion with regards to direct materials is usually easier and more accurate than estimating the degree of completion with regards to conversion costs
Which of the following statements is true of conversion costs?
Estimating the degree of completion is usually easier for direct material costs than for conversion costs
The weighted-avg process-costing method calculates the equivalent units by…
the equivalent units completed during the current period plus the equivalent units in ending inventory
The Swivel Chair Company manufactures a standard recliner. During February, the firm's Assembly Department started production of 154,000 chairs. During the month, the firm completed 178,000 chairs and transferred them to the Finishing Department. The firm ended the month with 24,000 chairs in ending inventory. All direct materials costs are added at the beginning of the production cycle. Weighted−average costing is used by Swivel. Of the 154,000 units Swivel started during February, how many were finished during the month?
130,000
Which of the following best describes transferred-in costs?
costs incurred in a previous department or process that are carried forward as the product’s cost as that product moves to another department or process in the production cycle
A golf shoe manufacturer makes and sells thousands of golf shoes each year through two channels: wholesale to sporting good stores and direct to consumers through it's custom portal. Customers can specify modifications to 6 basic golf shoe models including spiked or spikeless, traditional or casual, even laced or other closures. From there, customers can specify many details to their preferred model such as size and width (different for each foot), favorite colors for the base, saddle, accents and laces. A customer can choose to embroidered a name or initials or include the logo of their favorite MLB, NFL, NHL or NCAA team. Which of the following costing systems would make the most sense for the custom golf shoe operation and the main product operation (not customized / wholesale)?
operation-costing and process costing
Managers find operation costing useful in cost management because it…
focuses on control of physical processes of a given production system
Which of the following is true of ISO 9000?
It helps co.’s monitor, document and certify the elements of their production processes that lead to quality
The costs of quality are the costs incurred…
to prevent the production of a low quality product
Spoilage, rework, scrap, and machine repairs are all examples of…
internal failure costs
Quality is defined as the total features and characteristics of a product or a service made or performed according to specifications to satisfy customers at the time of purchase and during use
true
What is it that a statistical quality control chart does?
it plots each observation relative to specified ranges that represent the expected distribution
Which of the following is a chart which indicates how frequently each type of defect occurs?
Pareto diagram
An illustration that resembles the bone structure of a fish and identifies potential reasons why a problem exists is called…
casue and effect diagram
Managers identify the relevant costs and benefits for each solution by focusing on…
how total costs and total revenues will change under each alternative solution related to quality improvements
Cysco Corp has a budget of $1,206,000 in 2020 for prevention costs.
…
What is the net impact of all the changes created by the preventative changes? Assume that internal product failures are reduced by 35% with the new procedures.
$(280,300)
Which of the following is true of nonfinancial measures of quality?
They provide immediate short-run feedback on whether quality-improvement efforts are succeeding
The time it takes the marketing department to specify to the manufacturing department the exact requirements of the customer’s order is referred to as…
receipt time
Zenich Corp manufactures laptops. The waiting time is 60 minutes before the start of production and the manufacturing lead time is 158 minutes per laptop. What is its manufacturing cycle efficiency? (Round to the nearest whole percent.)
62%
Alex is injured and rushed to Care Hospitals for treatment. He spent 64 minutes at the hospital out of which he filled a form for 18 minutes, stood in queue for 16 minutes, dr. treated him for 21 minutes, and payments time was 9 minutes. What is the service cycle efficiency for his visit?
32.81%
Manufacturing cycle times affect both revenues and costs
true
Increasing the capacity of a bottleneck resource increases manufacturing cycle times and delays
false
Speedy Dress Manufacturing has two workstations, cutting and finishing. The cutting station is limited by the speed of operating the cutting machine. Finishing is limited by the speed of the workers. Finishing normally waits for work from cutting. Each department works an eight−hour day. If cutting begins work two hours earlier than finishing each day, the two departments generally finish their work at about the same time. Not only does this eliminate the bottleneck, but also it increases finished units produced each day by 250 units. All units produced can be sold even though the change increases inventory stock by 15% from 420 units. The cost of operating the cutting department two more hours each day is $1,400. The contribution margin of the finished products is $6 each. Inventory carrying costs are $1.4 per unit per day.
$12
Captain Carl's Seascapes produces framed sea pictures for sale through catalogs. The company has two workstations, photo production and framing. The photo production station is limited by the speed of operating the photo development machine. Framing is limited by the speed of the employees. Framing normally waits for work from photo production. Each department works an eight−hour day. If Captain Carl's Seascapes adds an earlier half shift so that photo production begins work four hours earlier than framing each day, the two departments generally finish their work at about the same time. Not only does this eliminate the bottleneck, but it also increases finished units produced each day by 290 units. All units produced can be sold. The cost of operating the photo production department four more hours each day is $1,280. The contribution margin of the finished products is $14 each. What is the change in the daily contribution margin if the change is made?
$2,780
Among different types of costs associated with inventory, the costs of obtaining purchase approvals are…
ordering costs
The costs that result when a co. runs out of a particular item for which there is a customer demand are…
stockout costs
Stockout costs arise when an org. experiences an ability to deliver its goods to its customers
false
Which of the following is the correct mathematical expression to calculate annual relevant ordering costs?
(Demand in units for a specified period / size of each order) x Relevant ordering cost per puchase order
Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases DVDs from Globe at $27.00 per DVD; DVDs are shipped in packages of 64. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 319,000 DVDs at a rate of 7,000 DVDs per week. DVD Mart earns 15% on its cash investments. The purchase−order lead time is one week. The following cost data are available:
Relevant ordering costs per purchase order:$118.50
Carrying costs per package per year: Relevant insurance, materials handling, breackage, etc. per year: $8.50
How many deliveries will be made during each time period?
75.03 deliveries
Vision Company sells optical equipment. Blitz Company manufactures special glass lenses. Vision orders 12,200 lenses per year, 200 per week, at $42 per lens. Blitz covers all shipping costs. Vision earns 21% on its cash investments. The purchase−order lead time is 2.0 weeks. Vision sells 225 lenses per week. The following data are available:
Relevant ordering costs per purchase order: $41.25
Relevant insurance materials handling, breakage, etc. per year: $8.50
450 lenses
Relevant total costs in the economic order quantity decision model = relevant ordering costs plus which of the following costs?
carrying costs
If Kenton Inc. has a safety stock of 205 units and the average weekly demand is 55 units, how many days can be covered if the shipment from the supplier is delayed by 12 days?
26 days
Which of the following costs is a relevant inventory carrying cost of carrying inventory?
The costs of shrinkage
The costs of storage space owned are always relevant costs of carrying inventory
false
Which of the following statements best defines a materials requirements planning system?
a push-through system that manufactures finished goods for inventory on the basis of demand forecasts
The demand-pull feature of JIT production systems results in close coordination among workstations and smooths the flow of goods
true
Note
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