Cost Accounting Systems

(C. Strategic Cost Management and JIT)

STRATEGIC COST MANAGEMENT AND JIT

7. Which focuses on process improvement, process innovation, or business reengineering?
THEORIES: A.. functional-based responsibility accounting
B. activity-based responsibility accounting
1. The major functions of management are C. strategic-based responsibility accounting
A. strategic management and long-range planning. D. none of the above
B. planning and decision making.
C. identifying threats and opportunities for the firm. 8. The optimal level in the optimal cost management system is when
D. all of the above. A. measurement costs are greater than error costs
B. measurement costs are less than error costs
2. The three major types of competitive strategy include C. the total of measurement costs and error costs are minimized
A. cost leadership, differentiation, and productivity. D. both b and c
B. cost leadership, focus, and productivity.
C. differentiation, focus, and productivity. 9. A repetitive action fulfilling a business function and increasing the worth of the product and the
D. cost leadership, differentiation, and focus. price that the customer is willing to pay for the product is referred to as a:
A. non-value added activity
3. Sustainability means the balancing of B. value-added activity
A. short term and long term goals in economic performance. C. business value-added activity
B. short term and long term goals in social aspects. D. activity analysis
C. short term and long term goals in environmental aspects.
D. all of the above. 10. The actual time that a product must be delayed while waiting to be processed is called:
A. service time C. transfer time
4. Simultaneous engineering can be used to B. inspection time D. idle time
A. reduce both product and process complexity.
B. integrate activity-based costing with value chain analysis. 11. The resource utilized by a given product divided by the total amount of the resource available is
C. reduce the time-to-market of new products through elimination of batch-level activities. called the
D. reduce manufacturing cycle efficiency by reducing process waste. A. activity driver C. cost object
B. consumption ratio D. sustaining activity
5. Engaging in which of the following will result in radical changes being made to an organization's
processes? 12. The primary objective of just-in-time processing is to
A. Continuous improvement C. Reengineering A. accumulate overhead in activity cost pools
B. Benchmarking D. Mass customization B. eliminate or reduce all manufacturing inventories
C. identify relevant activity cost drivers
6. In the contemporary business environment, cost management focus is on D. none of them
A. financial reporting and cost analysis.
B. common emphasis on standardization and standard costs. 13. The benefits of a successful Just-In-Time system include all of the following except:
C. development and implementation of the business strategy. A. funds tied up in inventories are released for use elsewhere.
D. a and c. B. inventory buffers are increased.

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C. throughput time is reduced. B. subassembly parts are completed just in time for use in assembling finished goods
D. defect rates are decreased. C. finished goods are completed just in time to be sold
D. all of the above
14. Which of the following is not a benefit of just-in-time processing?
A. Control of significant inventory balances. 19. A successful JIT system is based upon which of the following concepts?
B. Enhanced product quality. A. The company must rely upon a large number of suppliers to ensure frequent deliveries
C. Reduction of rework costs. of small lots.
D. Production cost savings. B. The company should always choose those suppliers offering the lowest prices.
C. The company should avoid long-term contracts with suppliers so as to exert pressure on
15. A key concept of the JIT inventory system is: suppliers to make prompt and frequent deliveries.
A. the raw materials, work in process, and finished goods inventories of manufacturing D. A small number of suppliers make frequent deliveries of specific quantities thus avoiding
companies act as buffers so that operations can proceed smoothly even if suppliers are the buildup of large inventories of materials on hand.
late with deliveries or a department is unable to operate for a brief period due to
breakdowns or other reasons. 20. A company adopting the JIT approach would:
B. the use of many suppliers so as to ensure rapid delivery of materials for production. A. produce large batches of products so as to recoup the costs associated with setups.
C. the maintenance of a stock of raw materials so that defective materials can be replaced B. attempt to reduce setup time so as to economically produce in smaller batches.
quickly so as to maintain a high rate of productivity. C. adapt a functional plant layout so as to enhance production flexibility.
D. inventories are costly to carry and can be kept to minimum levels or eliminated completely D. require workers to become highly specialized in operating a single machine.
with careful planning.
21. Conventional and just-in-time manufacturers differ in that the conventional manufacturer is likely
16. The just in time (JIT) concept applies to which of the following: to
I. The acquisition of raw materials. A. be a new entrant into its industry.
II. The assembly of manufactured parts in products. B. need less storage space than its JIT competitors.
III. The shipment of finished products to customers. C. give less credibility to management accounting reports.
A. I. C. I, II, III. D. have a longer production cycle than its JIT competitors.
B. I, III. D. II, III.
22. In JIT manufacturing, each operation produces
17. The flow of goods through a JIT system is based on: A. only what is necessary for the succeeding operations
A. a workstation efficiently completing its processing of a batch of units so that the units can B. all that it can to offset fixed costs
proceed forward to the next workstation before the next workstation is ready to receive C. a fixed percentage in excess of orders to ensure adequate quality stock
them. D. all that it can in order to build inventories
B. processing goods in large batch sizes rather than less economical small batches.
C. maintaining a stockpile of raw materials in anticipation of materials shortages. 23. Many companies have significantly lowered inventory levels and costs using
D. producing to meet customer demand with no buildup of inventory at any point in the A. activity-based costing.
production process. B. an enterprise resource planning system.
C. the just-in-time method.
18. Under just-in-time processing D. a total quality management system.
A. raw materials are received just in time for use in production

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24. JIT manufacturing emphasizes 31. Problems encountered with using traditional product costing for JIT manufacturing usually stem
A. large amounts of inventory on hand so that the company does not run out of it from
B. small amounts of inventory on hand resulting in lower quality goods because production A. assigning direct materials costs to units of product.
is rushed B. assigning direct labor costs to units of product.
C. reducing investment in inventory and increasing the emphasis on quality C. assigning overhead costs to units of product.
D. both b and c D. all of the above.

25. A just-in-time manufacturer is more likely than a conventional manufacturer to 32. A characteristic of the just-in-time manufacturing environment is
A. receive more frequent deliveries of materials. A. frequent deliveries of materials
B. spend less money on advertising. B. manufacturing cells
C. need workers with fewer skills. C. little or no inventory of finished product
D. all of the above. D. all of the above

26. Just-in-time manufacturing 33. Just-in-time relates to

A. is a demand pull rather than a push through the system A. people getting to their job location just in time to begin their work.
B. allows the firm to focus on quality and productivity simultaneously B. machinery placed in service just in time to begin production.
C. increases product cost accuracy by increasing a firm’s ability to track costs to products C. materials received from suppliers just in time for production needs.
D. all of the above D. all of the above.

27. If JIT manufacturing is used, maintenance of the production equipment would be classified as 34. Which of the following is a value-added activity?
a A. Engineering design. C. Inventory storage.
A. unit-level activity C. product-level activity B. Machinery repair. D. Inspections.
B. cell-level activity D. facility-level activity
35. Which of the following is a nonvalue-added activity?
28. Under JIT manufacturing, many overhead costs formerly classified as indirect costs are now A. Engineering design. C. Inspection.
A. eliminated C. no longer traceable B. Machining. D. Packaging.
B. depreciated D. directly traceable to the product
36. A nonvalue-added activity in a service enterprise is
29. When JIT manufacturing is used, which of the following costs is considered an indirect product A. taking appointments. C. advertising.
cost? B. traveling. D. all of them.
A. the cost to set up cell equipment C. property taxes on the plant
B. the cost of maintenance on equipment D. salary of the cell supervisor 37. Value-added activities
A. should be reduced or eliminated.
30. When JIT manufacturing is used, which of the following costs is considered a direct product B. involve resource usage that customers are willing to pay for.
cost? C. add cost to a product without affecting the selling price.
A. insurance on the plant and equipment C. janitors’ salary D. cannot be differentiated from nonvalue-added activities.
B. repair parts for the machinery D. salary of the plant supervisor
38. The company's goal for defective units as a percentage of total units produced should be:

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A. 1.50% C. 0.05% A. finished goods. C. supplies.

B. 0.00% D. 0.53% B. raw materials. D. subassembly parts.

39. All of the following are examples of non-value-added activities except 47. A just-in-time manufacturing process should have substantially less of which of the following
A. ordering C. receiving than a traditional manufacturing process?
B. assembling D. inspections A. B. C. D.
Idle Time Yes Yes Yes No
40. Sequencing if-then statements is a simple method of: Transfer Time Yes No Yes Yes
A. testing a strategy C. creating lead measures Value-added Time Yes No No No
B. prioritizing objectives D. evaluating performance Cycle Time Yes Yes Yes No

41. Setting balanced objectives, setting target values, and aligning rewards are: 48. Manufacturing cycle efficiency should be increased by employing which of the following
A. necessary steps in creating a balanced scorecard techniques?
B. important aspects of the capital budgeting process A. B. C. D.
C. the heart of process innovation
Just-in-Time Inventory Yes Yes No Yes
D. the ingredients for economic forecasting
Flexible Manufacturing Systems Yes Yes No No
Batch Manufacturing Yes No No Yes
42. Delivery performance declines by:
A. increasing cycle time C. increasing velocity
B. decreasing cycle time D. decreasing turnover Question Nos. 49 and 50 are based on the following:
Small Computer Company has the following personnel:
43. Just-in-time processing I. Two inspectors: inspect the final computers
A. is based on a just-in-case philosophy. II. Four fabricators: make the computer cases
B. results in a push approach. III. Two computer programmers: run all of the bookkeeping for the accounting records
C. minimizes inventory storage and waiting time. IV. Seven assemblers: manufacture the mother boards
D. all of these. V. One owner: writes the paychecks

44. An element of just-in-time processing is 49. Which groups of employees are value-added workers?
A. dependable suppliers who are willing to deliver on short notice. A. I and II C. II and III
B. a multi-skilled workforce. B. III and V D. II and IV
C. a total quality control system.
D. all of them. 50. Which groups of employees are non-value-added workers?
A. I, II, and III C. I, III and V
45. Which account is used in just-in-time processing? B. III, IV, and V D. I, II, and IV
A. Raw materials inventory C. Merchandise inventory
B. Work in process inventory D. Raw and In-Process inventory PROBLEMS:
Questions 1 & 2 are based on the following information.
46. Under just-in-time processing, all of the following are received or completed “just in time” except Brad Company developed the following budgeted life-cycle income statement for two proposed

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products. Each product's life cycle is expected to be two years. A. P130 C. P106
B. P150 D. P126
Product A Product B Total
Sales P230,000 P220,000 P450,000 v. Hristec Company sells a product for P215 per unit. Its market share is 20 percent. The marketing
Cost of goods sold 150,000 150,000 300,000 manager feels that the market share can be increased to 30 percent with a reduction in price to
Gross profit P 80,000 P 70,000 P150,000 P195. The product is currently earning a profit of P45 per unit. The president of Hristec Company
Period expenses: feels that the P45 profit per unit must be maintained. What is the original cost per unit?
Research and development (60,000) A. P170 C. P215
Marketing (50,000) B. P195 D. P150
Life-cycle income P40,000
A 10% return on sales is required for new products. Because the proposed products did not have a Question Nos. 6 and 7 are based on the following:
10% return on sales, the products were going to be dropped. Prior to installing a JIT system, Friendly 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 P840,000
Relative to Product B, Product A requires more research and development costs but fewer resources per year. The machine hours used by each product and the quantity produced of each product are
to market the product. Seventy percent of the research and development costs are traceable to as follows:
Product A, and 40 percent of the marketing costs are traceable to Product A. Machine Hours Quantity Produced
4-inch 6,000 15,000 rolls
i. If research and development costs and marketing costs are traced to each product, life-cycle 6-inch 10,000 12,500 rolls
income for Product A would be 9-inch 8,000 11,200 rolls
A. P18,000 C. P70,000 After installing JIT, three manufacturing cells were created and the cell workers were trained to
B. P22,000 D. P80,000 perform maintenance. Maintenance costs for the three cells still totaled P840,000; however, these
costs are now traceable to each cell.
ii. Return on sales for Product A would be Cell, 4-inch P220,000
A. 34.8% C. 7.83% Cell, 6-inch 300,000
B. 10% D. 8.89% Cell, 9-inch 320,000

Questions 3 & 4 are based on the following information. vi. The maintenance cost per roll of 4-inch insulation before JIT is installed would be
Wine Factory sells a product for P150 per unit. Its market share is 25 percent. The marketing A. P24.00 C. P14.00
manager feels that the market share can be increased to 33 percent with a reduction in price to B. P17.50 D. P13.16
P130. The product is currently earning a profit of P24 per unit. The president of Wine Factory
feels that the P24 profit per unit must be maintained. vii. The maintenance cost per roll of 9-inch insulation before JIT is installed would be
A. P17.50 C. P28.57
iii. What is the target cost per unit? B. P25.00 D. P75.00
A. P130 C. P106
B. P150 D. P126 viii. The product cell for Crane Company has budgeted conversion costs of P420,000 for the year.
The cell is planned to be available 2,100 hours for production. Each unit requires P12.50 of
iv. What is the original cost per unit? materials costs. The cell started and completed 700 units. The cell process time for the

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product is 15 minutes per unit. B. 2.44 units per hour D. 2.75 units per hour
What is the total product cost for the period?
A. P35,000 C. P40,000 xi. Actual velocity is:
B. P38,750 D. P43,750 A. 2.5 units per hour C. 2.32 units per hour
B. 2.75 units per hour D. 2.44 units per hour
ix. Big Computers has the following personnel:
Seven assemblers: manufacture the mother boards xii. Dapitan, Inc. manufactures a product that experiences the following activities:
One owner: writes the paychecks Processing (three departments) 40 hours
Two inspectors: inspect the final computers Moving (four moves) 18 hours
Three fabricators: make the computer cases Waiting time 42 hours
One computer programmer: runs all of the bookkeeping for the accounting records Storage time (before delivery) 100 hours
Two shipping clerks; ship computers to the warehouse The MCE for the product is
What would be the value-added labor ratio for this company? A. 5% C. 20%
A. 4/8 or 37.5 percent C. 5/8 or 62.5 percent B. 25% D. 40%
B. ½ or 50 percent D. ¾ or 75 percent
xiii. At the beginning of 2007, Sanchez Company installed a JIT purchasing and manufacturing
Questions 10 & 11 are based on the following information. system. The following information has been gathered about one of the company's products:
At the beginning of 2005, Peterson Company installed a JIT purchasing and manufacturing system. Theoretical annual capacity 2,200
The following information has been gathered about one of the company's products: Actual production 2,000
Theoretical annual capacity 2,200 Production hours available 1,000
Actual production 2,000 On-time deliveries 900
Production hours available 800 Total deliveries 940
On-time deliveries 900 Number of defective units 30
Total deliveries 950 The company's on-time delivery percentage is:
A. 90 percent C. 94 percent
x. The theoretical velocity is: B. 95.7 percent D. 104.4 percent
A. 2.32 units per hour C. 2.5 units per hour

i. Answer: A
Gross profit P80,000 iii. Answer: C
Deduct: Target price P130
Research and development costs (0.70 x P60,000) ( 42,000) Less target profit 24
Marketing costs (0.40 x P50,000) ( 20,000) Target cost P106
Life-cycle income of Product A P18,000
iv. Answer: D
ii. Answer: C Original selling price P150
Return on sales, Product A: (P18,000 ÷ P230,000) = 7.83% Less profit 24

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Fabricators 3 personnel
Original unit cost P126 Total 10 personnel
Value-added activity ratio: (10 ÷ 16) 5/8 or 62.5%
v. Answer: A
Original Cost: (P215 – P45) = P170 x. Answer: D
Theoretical velocity = Theoretical capacity ÷ Available hours
vi. Answer: C (2,200 units ÷ 800 hours) = 2.75 units per hour
Maintenance cost per MH: (P840,000 ÷ 24,000) P25
Maintenance cost per roll, 4-Inch (6,000 x P35 ÷ 15,000) P14 xi. Answer: A
Actual Velocity: Actual Production ÷ Available Hours
vii. Answer: C (2,000 ÷ 800) = 2.5 units per hour
Maintenance cost per unit, 9-Inch: (P320,000 ÷ 11,200) = P28.57
xii. Answer: C
viii. Answer: D MCE = Value Added Time ÷ Throughput Time
Materials cost (700 x P12.50) P 8,750 40 ÷ (40 + 18 + 42 + 100) = 0.20
Conversion costs (700 x 0.25 x P200) 35,000
Total P43,750 xiii. Answer: B
On-time Delivery Percentage = On-time Delivery ÷ Total Delivery
ix. Answer: C (900 ÷ 940) = 95.7%
Value-added labor:
Assemblers 7 personnel

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