26managing Accounting in A Changing Environment

CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
ESSAY:
1. What roles do management accountants play in TQM?

The role of management accountants in total quality management includes gathering all relevant
quality information, participating actively in all phases of the quality program, and reviewing
and disseminating quality cost reports.
2. How can management accountants meet the challenges of TQM?

To meet the challenges of total quality management, management accountants need to have a
clear understanding of TQM methodology. They must be able to design, create, or modify
information systems that measure and monitor quality and evaluate progress toward total quality
as expected of each organizational unit and the total enterprise.
3. Describe JIT purchasing and its benefit.

Just-in-time (JIT) purchasing is the purchase of goods or materials such that a delivery
immediately precedes demand or use. Benefits include lower inventory holdings (reduced
warehouse space required and less money tied up in inventory) and less risk of inventory
obsolescence and spoilage.
4. What are the core principles of total quality management?

The core principles of TQM include (1) focusing on satisfying the customer, (2) striving for
continuous improvement, and (3) involving the entire work force.
5. Why is continuous quality improvement essential to achieve TQM and critical to an

organization’s success and competitive position?
Continuous improvement (Kaizen) in total quality management is the belief that quality is not a
destination; rather, it is a way of life and firms need to continuously strive for better products
with lower costs.
In today’s global competition, where firms are forever trying to outperform the competition and
customers present ever-changing expectations, a firm can never reach the ideal quality standard
and needs to continuously improve quality and reduce costs to remain competitive.
6. What is cost of conformance?

Costs of conformance are costs incurred to ensure that products or services meet quality
standards and include prevention costs and appraisal costs.
7. What is cost of Nonconformance?

Internal and external failure costs are costs of non-conformance. They are costs incurred or
opportunity costs because of rejection of products or services.
8. Many organizations found that investment in prevention and appraisal usually resulted in major
cost savings in other areas. Explain this phenomenon.
Better prevention of poor quality often reduces all other costs of quality. With fewer problems
in quality, appraisal is needed because the products are made right the first time. Fewer
defective units also reduce internal and external failure costs as the occasion for repairs, rework,
and recalls decrease.
It is easier to design and build quality in than try to inspect or repair quality in. Theoretically, if
prevention efforts are completely successful, there will be no need to incur appraisal costs and
there will be no internal failure or external failure costs. In practice, appraisal costs usually do
not decrease, partly because management needs to ensure that quality is there as expected.
Nonconformance costs, however, decrease at a much faster pace than prevention costs increase.
9. Define quality.
Quality for a product or service can be defined as a “product or service that conforms to a design
which meets or exceeds the expectations of customers at a price they are willing to pay.”
10. What is TQM?

Procter & Gamble defines TQM as “the unyielding and continually improving effort by
everyone in an organization to understand, meet, and exceed the expectations of customers.”
Typical characteristics of TQM include focusing on satisfying customers, striving for continuous
improvement, and involving the entire workforce.
11. At what point can a firm consider its effort to achieve total quality management complete?
TQM is a continual effort and never completes. Global competition, new technology, and ever-
changing customer expectations make TQM a continual effort for a successful firm.
12. Describe the 3 main measures used in the theory of accounts.

The three main measures used in the theory of constraints are:
i. Throughput contribution equal to sales revenue minus direct materials costs.
ii. Investments (inventory) equal to the sum of materials costs of direct materials inventory,
work-in-process inventory and finished goods inventory, research and development costs,
and costs of equipment and buildings.
iii. Other operating costs equal to all operating costs (other than direct materials) incurred to
earn throughput contribution.
13. Describe the four key steps in managing bottleneck operations.

The four key steps in managing bottleneck resources are:
Step 1: Recognize that the bottleneck operation determines throughput contribution.
Step 2: Search for, and find the bottleneck.
Step 3: Keep the bottleneck busy, and subordinate all non-bottleneck operations to the
bottleneck operation.
Step 4: Increase bottleneck efficiency and capacity.
14. What are the purposes of conducting a quality audit?

The purposes of conducting a quality audit are to identify strengths and weaknesses in quality
practices and levels of a firm’s quality and to help the firm identify the target areas for quality
improvements.
15. What is gap analysis?

A gap analysis is a type of benchmarking that includes analyzing the differences in practices
between the firm and the best-in-class. The objective of gap analyses is to identify strengths,
weaknesses, and target areas for quality improvement.
16. Describe the processes for an effective implementation of TQM.

The Institute of Management Accountants (IMA) believes an effective implementation of total
quality management will take between three and five years and involves the following tasks:
Year 1
a. Create a quality council and staff
b. Conduct executive quality training programs
c. Conduct quality audits
d. Prepare gap analysis
e. Develop strategic quality improvement plans

Year 2
a. Conduct employee communication and training programs
b. Establish quality teams
c. Create measurement systems and set goals
Year 3
a. Revise compensation / appraisal / recognition systems
b. Launch external initiatives with suppliers
c. Review and revise
17. What are the main features in a JIT production system?

Just-in-time (JIT) production is a “demand-pull” manufacturing system that has the following
features:
a. Organize production in manufacturing cells,
b. Hire and retain workers who are multi-skilled,
c. Aggressively pursue total quality management (TQM) to eliminate defects,
d. Place emphasis on reducing both setup time and manufacturing lead time, and
e. Carefully select suppliers who are capable of delivering quality materials in a timely
manner.
18. Why is it often necessary to revise a firm’s compensation and appraisal systems when
implementing TQM?
Reward and recognition are the best means of reinforcing the emphasis on TQM. Moreover,
proper reward and recognition structures can be very powerful stimuli to promote TQM. Efforts
and progress will most likely be short-lived if no change is made to the compensation /
appraisal / recognition systems to make them in line with the objectives of the firm’s TQM.
19. Describe how the internet can be used to reduce the cost of placing purchase orders.
The sequence of activities involved in placing a purchase order can be facilitated by use of the
Internet. A company can streamline the procurement process for its customers – e.g., having
online a complete price list, information about expected shipment dates, and a service order
capability that is available 24 hours a day with email or fax confirmation.
20. What is reengineering?

Reengineering is the fundamental rethinking and redesign of business processes to achieve
improvements in critical measures of performance such as cost, quality, service, speed, and
customer satisfaction.
MULTIPE CHOICE: THEORIES
1.Which of the following statements about managerial accountants is false?

A. Managerial accountants more and more are considered "business partners."
B. Managerial accountants often are part of cross-functional teams.
C. An increasing number of organizations are segregating managerial accountants in separate
managerial-accounting departments.
D. In a number of companies, managerial accountants make significant business decisions and
resolve operating problems.

E. The role of managerial accountants has changed considerably over the past decade.
2. The day-to-day work of management teams will typically comprise all of the following activities
except:
A. decision making.
B. planning.
C. cost minimizing.
D. directing operational activities.
E. controlling.
3. Which of the following functions is best described as choosing among available alternatives?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Budgeting.
4. Which of the following managerial functions involves a detailed financial and operational
description of anticipated operations?
A. Decision making.
B. Planning.
D. Controlling.
E. Measuring.
5. Which of the following involves the coordination of daily business functions within an
organization?
A. Decision making.
B. Planning.
D. Controlling.
E. Motivating.
6. Titan Company has set various goals, and management is now taking appropriate action to
ensure that the firm achieves these goals. One such action is to reduce outlays for overhead,
which have exceeded budgeted amounts. Which of the following functions best describes this
process?
A. Decision making.
B. Planning.
C. Coordinating.
D. Controlling.
E. Organizing.
7. Which of the following is not an objective of managerial accounting?

A. Providing information for decision making and planning.
B. Assisting in directing and controlling operations.
C. Maximizing profits and minimizing costs.
D. Measuring the performance of managers and subunits.
E. Motivating managers toward the organization's goals.
8. The role of managerial accounting information in assisting management is a(n):

A. financial-directing role.
B. attention-directing role.
C. planning and controlling role.
D. organizational role.
E. problem-solving role.
9. Employee empowerment involves encouraging and authorizing workers to take initiatives to:
A. improve operations.
B. reduce costs.
C. improve product quality.
D. improve customer service.
E. all of the above.
10. The process of encouraging and authorizing workers to take appropriate initiatives to improve
the overall firm is commonly known as:
A. planning and control.
B. employee empowerment.
C. personnel aggressiveness.
D. decision making.
E. problem recognition and solution.
11. Which of the following business models considers financial, customer, internal operating, and
other measures in the evaluation of performance?
A. Deterministic simulation.
B. Balanced scorecard.
C. Payoff matrix.
D. Decision tree.
E. Chart of operating performance (COP).
12. Which of the following perspectives is normally absent in a balanced scorecard?

A. Financial.
B. Customer.
C. Internal operations.
D. Learning and innovation/growth.
E. None of the above.
13. Managerial accounting:

A. focuses only on historical data.
B. is governed by GAAP.
C. focuses primarily on the needs of personnel within the organization.
D. provides information for parties external to the organization.
E. focuses on financial statements and other financial reports.
14. Managerial accounting:

A. is unregulated.
B. produces information that is useful only for manufacturing organizations.
C. is based exclusively on historical data.
D. is regulated by the Securities and Exchange Commission (SEC).
E. generally focuses on reporting information about the enterprise in its entirety rather than by
subunits.
15. Which of the following would likely be considered an internal user of accounting information
rather than an external user?
A. Stockholders.
B. Consumer groups.
C. Lenders.
D. Middle-level managers.
E. Government agencies.
16. All of the following entities would have a need for managerial accounting information except:
A. Dell Computer.
B. The Los Angeles Dodgers baseball club.
C. Office Depot.
D. The Federal Bureau of Investigation (FBI).
E. None of the above responses is correct, as all of these entities would use managerial
accounting information.
17. Which of the following choices correctly depicts whether Bank of America, Microsoft, and
Florida State University would have a need for managerial accounting?
Bank Florida State
of America Microsoft University
A. Yes Yes No
B. Yes No Yes
C. Yes Yes Yes
D. No Yes No
E. No Yes Yes
18. Financial accounting focuses primarily on reporting:

A. to parties outside of an organization.
B. to parties within an organization.
C. to an organization's board of directors.
D. to financial institutions.
E. for financial institutions.
19. Which of the following statements represents a similarity between financial and managerial
accounting?
A. Both are useful in providing information for external users.
B. Both are governed by GAAP.
C. Both draw upon data from an organization's accounting system.
D. Both rely heavily on published financial statements.
E. Both are solely concerned with historical transactions.
20.Which of the following employees at American Airlines would not be considered as holding a line
position?
A. Pilot.
B. Chief financial officer (CFO).
C. Flight attendant.
D. Ticket agent.
E. Baggage handler.
21. Which of the following employees would be considered as holding a line position?
A. The controller of Exxon Corporation.
B. The vice-president for government relations of Microsoft.
C. The manager of food and beverage services at Disney's Magic Kingdom.
D. A secretary employed by Hewlett-Packard.
E. None of the above.
22. Which of the following employees at Starbucks would likely be considered as holding a staff
position?
A. The company's chief operating officer (COO).
B. The manager of a store located in Kansas City, Missouri.
C. The company's lead, in-house attorney.
D. The company's chief financial officer (CFO).
E. Both the company's lead, in-house attorney and the chief financial officer.
23. The chief managerial and financial accountant of an organization is the:

A. chief executive officer (CEO).
B. treasurer.
C. vice-president of accounting.
D. internal auditor.
E. chief financial officer (CFO).
24. Which of the following typically does not relate to the role of a controller?
A. A controller supervises the accounting department.
B. A controller safeguards an organization's assets.
C. A controller oversees the preparation of reports required by governmental authorities.
D. A controller normally assumes a narrow role within the organization, often preventing the
individual's rise to top management ranks.
E. Choices "B" and "D" above.
25. A controller is normally involved with:

A. preparing financial statements.
B. managing investments.
C. raising capital.
D. safeguarding assets.
E. managing the firm's credit policy.
26. Which of the following is not a function of the treasurer?

A. Safeguarding assets.
B. Managing investments.
C. Preparing financial statements.
D. Being responsible for an entity's credit policy.
E. Raising capital.
27. Managerial accountants:

A. often work on cross-functional teams.
B. are located throughout an organization.
C. are found throughout an organization and work on cross-functional teams.
D. are found primarily at lower levels of the organizational hierarchy.
E. are found primarily at higher levels of the organizational hierarchy.
28. The two dimensions of managerial accounting are:

A. a decision-facilitating dimension and a decision-influencing dimension.
B. a decision-facilitating dimension and a financial-influencing dimension.
C. a decision-influencing dimension and a cost-minimizing dimension.
D. a cost-minimizing dimension and a profit-maximizing dimension.
E. a decision-influencing dimension and a profit-maximizing dimension.
29. Much of managerial accounting information is based on:

A. a cost-benefit theme.
B. profit maximization.
C. cost minimization.
D. the generation of external information.
E. effectiveness but not efficiency.
30. Which of the following is not normally considered to be an element of e-business?

A. E-budgeting.
B. Supply-chain management.
C. E-commerce.
D. Balanced scorecards.
E. Choices "B" and "D" above.
31. Managerial accounting has changed in recent years because of:

A. the growth of e-business.
B. increased global competition.
C. the emergence of new industries.
D. an increased focus on the customer.
E. all of the above factors.
32. Managerial accounting has changed in recent years because of:

A. a growing service economy in the United States.
B. the growing popularity of cross-functional teams.
C. computer-integrated manufacturing (CIM).
D. time-based competition.
E. all of the above factors.
33. Which of the following statement(s) about just-in-time (JIT) inventory management is (are)
true?
I. The emphasis of JIT is on "pull" manufacturing.

II. Raw materials are purchased just in time to be used in production.
III. JIT is an inventory technique that focuses on reduction of both inventory and related
inventory costs.
A. I only.
B. II only.
C. III only.
D. II and III.
E. I, II, and III.
34. Ohio Corporation recently implemented a just-in-time (JIT) production system along with a
series of continuous improvement programs. If the firm is now considering adopting a total
quality management (TQM) program, it would likely find that TQM:
A. is consistent with both JIT and continuous improvement.
B. is consistent with JIT but inconsistent with continuous improvement.
C. is consistent with continuous improvement but inconsistent with JIT.
D. is inconsistent with both JIT and continuous improvement.
E. is an antiquated management technique.
35. Cost management systems tend to focus on an organization's:

A. machines.
B. employees.
C. activities.
D. customers.
E. rules and regulations.
36. The value chain of a manufacturer would tend to include activities related to:
A. manufacturing.
B. research and development.
C. product design.
D. marketing.
E. all of the above.
37. Which of the following choices correctly depicts activities that would be included in a
manufacturer's value chain?
Research and
Development Marketing Distribution
A. Yes Yes No
B. Yes No Yes
C. Yes Yes Yes
D. No Yes No
E. No Yes Yes
38. Which of the preceding activities would likely not be considered part of The Gap clothing
company’s value chain?
A. Designing a new product line.
B. Locating and then negotiating terms with a clothing manufacturer.
C. Marketing an existing product line.
D. Distributing goods from regional warehouses to local stores.

E. All of the above activities would be an element in the company’s value
chain.
39. The activities performed by a manufacturing organization could be categorized as pre-

production (such as research and development and product design), production-related, and post-
production (such as marketing and customer service). Which activities should the firm focus on
if management understands the value chain concept and desires to meet organizational goals?
A. Pre-production activities.
B. Production-related activities.
C. Post-production activities.
D. Pre-production, production-related, and post-production activities.
E. Pre-production and production-related activities.
40. In order for a company to achieve a sustainable competitive advantage, it must perform
value chain activities:
A. at the same quality level as competitors, at the same cost.
B. at the same quality level as competitors, but at a lower cost.
C. at a higher quality level than competitors, at a higher cost.
D. at a higher quality level than competitors, but at no greater cost.
E. at either the same quality level as competitors, but at a lower cost, or at a higher quality
level than competitors, but at no greater cost.
41. The process of managing the various activities in the value chain, along with the associated
costs, is commonly known as:
A. activity-based costing.
B. strategic cost management.
C. total quality management.
D. computer-integrated costing.
E. sound management practices (SMP).
42. A company has a bottleneck operation that slows production. Which of the following tools or
approaches could the firm use to determine the most cost-effective ways to eliminate this
problem?
A. Linear programming.
B. Theory of constraints.
C. Decision-tree diagrams.
D. Payoff matrices.
E. Strategic path analysis (SPA).
43. Which of the following can be linked to the relatively recent wave of corporate scandals?
A. Greedy corporate executives.
B. Managers who make over-reaching business deals.
C. Lack of oversight by companies' audit boards and boards of directors.
D. Shoddy work by external auditors.
E. All of the above.
44. Which of the following acts strives to improve corporate governance and the quality of corporate
accounting/reporting?
A. Robinson-Patman.
B. Taft-Hartley.
C. Sarbanes-Oxley.
D. Bush-Cheney.
E. Franks-Ashcroft.
45. Which of the following statements about the ethical climate of business is false?
A. Greedy corporate executives are, in part, to blame for the relatively recent rash of corporate
scandals.
B. Unethical business behavior can have a negative impact on our economy.
C. The Sarbanes-Oxley Act strives to improve the overall quality of corporate reporting.
D. The Robinson-Patman Act strives to improve the overall quality of corporate reporting.
E. Corporate scandals have served as the accounting profession’s wake-up call to pay increased
attention to ethical issues in the conduct of business.
46. Which of the following is not an ethical standard of managerial accounting?

A. Competence.
B. Confidentiality.
C. Efficiency.
D. Integrity.
E. Credibility.
47. Which of the following is not an element of competency?

A. To develop appropriate knowledge about a particular subject.
B. To perform duties in accordance with relevant laws.
C. To perform duties in accordance with relevant technical standards.
D. To refrain from engaging in an activity that would discredit the accounting profession.
E. To prepare clear reports after an analysis of relevant and reliable information.
48. Assume that a managerial accountant regularly communicates with business associates to avoid
conflicts of interest and advises relevant parties of potential conflicts. In so doing, the
accountant will have applied the ethical standard of:
A. objectivity.
B. confidentiality.
C. integrity.
D. credibility.
E. unified behavior.
49. The major users of accounting information are

a. external parties for making decisions about the company
b. internal managers for planning and control purposes
c. internal managers for nonroutine decisions
d. all of the above
50. Good accounting information helps an organization by:

a. accumulating and classifying data.
b. determining who should be fired and when.

c. directing management's attention.
d. helping to solve problems.
51. Which of the following should be considered in the selection of an accounting system?
a. behavioral effects of the system on managers
b. costs of buying and operating the system
c. improved decision-making power resulting from the system
d. all of the above
52. The cost-benefit balance weighs _____ costs against _____ benefits:
a. actual; actual
b. actual; estimated
c. estimated; estimated
d. estimated; actual
53. Which of the following is NOT and example of a special report?

a. cash flow report
b. customer survey
c. competitor analysis
d. advertising impact analysis
54. The process of setting goals is called:

a. controlling
b. managing
c. planning
d. none of the above
55. The focus on customers occurs in which functions of the value chain:
a. research and development
b. production
c. marketing
d. distribution
e. all of the above
56. In the value-chain, accounting is in the _____ function:

a. research and development
b. design
c. support
d. customer service
e. distribution
57. The functions of planning for control, evaluating and consulting, and governmental reporting are
typically assumed within organizations by:
a. the company treasurer
b. the company controller
c. the company vice-president of marketing
d. external auditors
58. The treasurer function includes:

a. tax administration
b. evaluating and consulting
c. investor relations
d. economic appraisal
60. Trends that are causing changes in management accounting today include:
a advances in technology
b. increased global competition
c. a shift from a manufacturing to a service-based economy
d. a., b.
e. a., b., c.
61. The most dominant influence on management accounting over the past decade is:
a. increased global competition
b. a shift from a manufacturing to a service-based economy
c. advances in technology
d. none of the above
62. Ethical obligations of management accountants are governed by the Standards of Ethical Conduct
for Management Accountants, which outlines responsibilities regarding:
a. incompetence, full disclosure of all information, moral decay, and partisanship
b. assisting in maximizing profits regardless of the means necessary
c. competence, confidentiality, integrity, and objectivity
e. none of these
63. Managerial accounting places considerable weight on:

A) generally accepted accounting principles.
B) the financial history of the entity.
C) ensuring that all transactions are properly recorded.
D) detailed segment reports about departments, products, and customers.
64. The plans of management are often expressed formally in:

A) financial statements.
B) performance reports.
C) budgets.
D) ledgers.
65. The phase of accounting concerned with providing information to managers for use in planning and
controlling operations and in decision making is called:
A) throughput time.
B) managerial accounting.
C) financial accounting.
D) controlling.
66. A staff position:

A) relates directly to the carrying out of the basic objectives of the organization.
B) is supportive in nature, providing service and assistance to other parts of the organization.
C) is superior in authority to a line position.
D) none of these.
68. For a manufacturing company, what type of position (line or staff) is each of the
following?
Manager of a Data Processing Manager of a Production

Department Department
A) Staff Staff
B) Staff Line
C) Line Staff
D) Line Line
69. A _______________ position in an organization is directly related to the achievement of the

organization's basic objectives.
A) line
B) management
C) staff
D) None of the above.
70. ______________ is an example of a line position.

A) Controller for a merchandising company
B) Chief financial officer of a merchandising company
C) Store manager for Best Buy
D) Human resources manager for a community college
71. Which of the following is NOT one of the three major customer value propositions discussed in
the text?
A) customer intimacy
B) discount pricing
C) operational excellence
D) product leadership
72. Which of the following is NOT one of the five steps in the lean thinking model discussed in the
text?
A) Continuously pursue perfection in the business process.
B) Identify value in specific products/services.
C) Implement an enterprise system.
D) Create a pull system that responds to customer orders.
73. One consequence of a change from a push to a properly implemented pull production system can
be:
A) an increase in work in process inventories.
B) an extremely difficult cultural change due to enforced idleness when demand falls below
production capacity.
C) an increased mismatch between what is produced and what is demanded by customers.
D) an increase in raw materials inventories.
74. All of the following are characteristics of a pull production system EXCEPT:
A) Inventories are reduced to a minimum by purchasing raw materials and producing units only
as needed to meet consumer demand.
B) Raw materials are released to production far in advance of being needed to ensure no
interruptions in work flows due to shortages of raw materials.
C) Products are completed just in time to be shipped to customers.
D) Manufactured parts are completed just in time to be assembled into products.
75. The five step framework used to guide Six Sigma improvement efforts includes all of the
following EXCEPT:
A) Analyze.
B) Control.
C) Digitize.
D) Measure.
76.The Sarbanes-Oxley Act of 2002 contains all of the following provisions EXCEPT:
A) The audit committee of the board of directors of a company must hire, compensate, and
terminate the public accounting firm that audits the company's financial reports.
B) Financial statements must be audited once every three years by the Government Accounting
Office.
C) Both the CEO and CFO must certify in writing that their company's financial statements and
accompanying disclosures fairly represent the results of operations.
D) A company's annual report must contain an internal control report.
77. The Institute of Management Accountants' Standards of Ethical Conduct contains a policy
regarding confidentiality that requires that management accountants:
A) refrain from disclosing confidential information acquired in the course of their work except
when authorized by management.
B) refrain from disclosing confidential information acquired in the course of their work in all
situations.
C) refrain from disclosing confidential information acquired in the course of their work except
when authorized by management, unless legally obligated to do so.
D) refrain from disclosing confidential information acquired in the course of their work in all
cases since the law requires them to do so.
78. Which of the following is NOT one of the Institute of Management Accountants' five Standards
of Ethical Conduct?
A) Competence
B) Confidentiality
C) Independence
D) Integrity
79. The controller of a company or other organization is

a. a staff manager.
b. an operating manager.
c. an accountant, not a manager.
d. a natural manager.
80. Which item is NOT an IMA Standard for Ethical Conduct?

a. Integrity.
b. Competence.
c. Loyalty.
d. Objectivity.
81. Which statement about the degree of detail in a report is true?

a. It depends on the level of the manager receiving the report.
b. It may depend on the frequency of the report.
c. It depends on the type of manager receiving the report.
d. All of the above.
82. Managerial accounting is similar to financial accounting in that

a. both are governed by generally accepted accounting principles.
b. both deal with economic events.
c. both concentrate on historical costs.
d. both classify reported information in the same way.
83. Managerial accounting differs from financial accounting in that it is

a. more concerned with the future.
b. more concerned with segments of a company.
c. less constrained by rules and regulations.
d. all of the above.
84. One of the ways managerial accounting differs from financial accounting is that managerial
accounting
a. is bound by generally accepted accounting principles.
b. classifies information in different ways.
c. does not use financial statements.
d. deals only with economic events.
85. Which activity is NOT normally performed by managerial accountants?

a. Assisting managers to interpret data in managerial accounting reports.
b. Designing systems to provide information for internal and external reports.
c. Gathering data from sources other than the accounting system.
d. Deciding the best level of inventory to be maintained.
86. Conventional and just-in-time manufacturers both

a. Maintain large inventories of their products.
b. Sell only to other manufacturing companies.
c. Desire to meet customers' deadlines.
d. Require about the same amount of space to operate.
87. Classifying costs by behavior is

a. associated primarily with financial accounting.
b. not relevant to a company that has only selling expenses.
c. common in reports prepared for external readers.
d. none of the above.
88. Which is NOT a common accounting classification of costs?

a. By the method of payment for the expenditure.
b. By the objective of expenditure.
c. By behavior.
d. By the function incurring the expenditure.
89. Which classification of costs is most relevant for income statements to be used internally?
a. Behavior.
b. Function.
c. Method of payment.
d. Object.
90. The set of processes that transform raw materials into finished products is known as a
a. differentiation strategy.
b. flexible manufacturing system.
c. lowest cost strategy.
d. value chain.
91. Income statements classifying costs by object show such items as

a. tax expense, wages expense, depreciation expense.
b. cost of goods sold, selling expenses, administrative expenses.
c. assets, liabilities, owners' equity.
92. The period that begins with the arrival of materials and ends with the shipment of a completed good
is the
a. cycle time.
b. manufacturing cell.
c. computer-integrated manufacturing.
d. performance period.
93. Which function is most directly related to management by objectives?

a. Planning.
b. Control.
c. Decision making.
d. Reporting.
94. Which consideration influences the frequency of an internal report?

a. The wishes of the managers receiving the report.
b. The frequency with which decisions are made that require the information in the report.
c. The cost of preparing the report.
95. A just-in-time manufacturer is more likely than a conventional manufacturer to

a. receive more frequent deliveries of materials.
b. spend less money on advertising.
c. need workers with fewer skills.
96. A conventional manufacturer is more likely than a just-in-time manufacturer to

a. have a short production cycle.
b. produce goods in small batches.
c. hold large inventories to serve as buffers.
d. none of the above.
97. The professional certification most relevant for managerial accountants is the
a. CMA.
b. CPA.
c. CSA.
d. MAS.
98. A firm that is competing using a _______________________ strategy is attempting to create a

perception of uniqueness that will permit a higher selling price.
a. value chain
b. lowest cost
c. lead time
d. differentiation
99. Planning and control are

a. different names for the same thing.
b. the basic functions of management.
c. described equally well by the terms "decision making" and "performance evaluation."
d. exemplified by, respectively, financial statements and budgeting.
100. In contrast to a balance sheet, an income statement

a. is for a period of time, a balance sheet is at a point in time.
b. gives information about cash and a balance sheet does not.
c. is prepared after the statement of retained earnings.
d. has two columns, while a balance sheet has more than two.
101. One characteristic of the conventional manufacturing environment is

a. flexible manufacturing systems.
b. manufacturing cells.
c. a just-in-case philosophy.
d. a high degree of quality control.
102. A characteristic of the just-in-time manufacturing environment is

a. frequent deliveries of materials.
b. manufacturing cells.
c. little or no inventory of finished product.
105. Conventional and just-in-time manufacturers differ in that the conventional manufacturer is likely
to
a. be a new entrant into its industry.
b. need less storage space than its JIT competitors.
c. give less credibility to management accounting reports.
d. have a longer production cycle than its JIT competitors.
106. Managerial accounting applies to each of the following types of businesses except
a. service firms.
b. merchandising firms.
c. manufacturing firms.
d. Managerial accounting applies to all types of firms.
107. Managerial accounting information is generally prepared for

a. stockholders.
b. creditors.
c. managers.
d. regulatory agencies.
108. Managerial accounting information

a. pertains to the entity as a whole and is highly aggregated.
b. pertains to subunits of the entity and may be very detailed.
c. is prepared only once a year.
d. is constrained by the requirements of generally accepted accounting principles.
110. The major reporting standard for presenting managerial accounting information is
a. relevance.
b. generally accepted accounting principles.
c. the cost principle.
d. the current tax law.
111. Managerial accounting is also called

a. management accounting.
b. controlling.
c. analytical accounting.
d. inside reporting.
112. Which of the following is not an internal user?

a. Creditor
b. Department manager
c. Controller
d. Treasurer
113. Managerial accounting does not encompass

a. calculating product cost.
b. calculating earnings per share.
c. determining cost behavior.
d. profit planning.
114. Managerial accounting is applicable to

a. service entities.
b. manufacturing entities.
c. not-for-profit entities.
d. all of these.
115. Management accountants would not

a. assist in budget planning.
b. prepare reports primarily for external users.
c. determine cost behavior.
d. be concerned with the impact of cost and volume on profits.
116. Internal reports must be communicated

a. daily.
b. monthly.
c. annually.
d. as needed.
117. Financial statements for external users can be described as

a. user-specific.
b. general-purpose.
c. special-purpose.
d. managerial reports.
118. Managerial accounting reports can be described as

a. general-purpose.
b. macro-reports.
c. special-purpose.
d. classified financial statements.
119. The reporting standard for external financial reports is

a. industry-specific.
b. company-specific.
c. generally accepted accounting principles.
d. department-specific.
120. Which of the following statements about internal reports is not true?
a. The content of internal reports may extend beyond the double-entry accounting system.
b. Internal reports may show all amounts at market values.
c. Internal reports may discuss prospective events.
d. Most internal reports are summarized rather than detailed.
121. In an analogous sense, external user is to internal user as generally accepted accounting
principles are to
a. timely.
b. special-purpose.
c. relevance to decision.
d. SEC.
122. Internal reports are generally

a. aggregated.
b. detailed.
c. regulated.
d. unreliable.
123. A distinguishing feature of managerial accounting is

a. external users.
b. general-purpose reports.
c. very detailed reports.
d. quarterly and annual reports.
124. What activities and responsibilities are not associated with management's functions?
a. Planning
b. Accountability
c. Controlling
d. Directing
125. Planning is a function that involves

a. hiring the right people for a particular job.
b. coordinating the accounting information system.
c. setting goals and objectives for an entity.
d. analyzing financial statements.
126. The managerial function of controlling

a. is performed only by the controller of a company.
b. is only applicable when the company sustains a loss.
c. is concerned mainly with operating a manufacturing segment.
d. includes performance evaluation by management.
127. Which of the following is not a management function?

a. Constraining
b. Planning
c. Controlling
d. Directing
128. A manager that is establishing objectives is performing which management function?

a. Controlling
b. Directing
c. Planning
d. Constraining
129. The management function that requires managers to look ahead and establish objectives is
a. controlling.
b. directing.
c. planning.
d. constraining.
130. In determining whether planned goals are being met, a manager is performing the function of
a. planning.
b. follow-up.
c. directing.
d. controlling.
131. Which of the following is not a separate management function?

a. Planning
b. Directing
c. Decision-making
d. Controlling
132. Directing includes

a. providing a framework for management to have criteria to terminate employees when
needed.
b. running a department under quality control standards universally accepted.
c. coordinating a company's diverse activities and human resources to produce a smooth-
running operation.
d. developing a complex performance ranking system to give certain high performers good
raises.
133. Both direct materials and indirect materials are

a. raw materials.
b. manufacturing overhead.
c. merchandise inventory.
d. sold directly to customers by a manufacturing company.
134. The work of factory employees that can be physically and directly associated with converting
raw materials into finished goods is
a. manufacturing overhead.
b. indirect materials.
c. indirect labor.
d. direct labor.
135. Which one of the following would not be classified as manufacturing overhead?
a. Indirect labor
b. Direct materials
c. Insurance on factory building

d. Indirect materials
136. Manufacturing costs include
a. direct materials and direct labor only.
b. direct materials and manufacturing overhead only.
c. direct labor and manufacturing overhead only.
d. direct materials, direct labor, and manufacturing overhead.
137. Which one of the following is not a direct material?

a. A tire used for a lawn mower
b. Plastic used in the covered case for a home PC
c. Steel used in the manufacturing of steel-radial tires
d. Lubricant for a ball-bearing joint for a large crane
138. Which one of the following is not a cost element in manufacturing a product?
a. Manufacturing overhead
b. Direct materials
c. Office salaries
d. Direct labor
139. A manufacturing process requires small amounts of glue. The glue used in the production
process is classified as a(n)
a. period cost.
b. indirect material.
c. direct material.
d. miscellaneous expense.
140. The wages of a timekeeper in the factory would be classified as

a. a period cost.
b. direct labor.
c. indirect labor.
d. compliance costs.
141. Which one of the following is not considered as material costs?

a. Partially completed motor engines for a motorcycle plant
b. Bolts used in manufacturing the compressor of an engine
c. Rivets for the wings of a new commercial jet aircraft
d. Lumber used to build tables
142. Which of the following is not a manufacturing cost category?

a. Cost of goods sold
b. Direct materials
c. Direct labor
d. Manufacturing overhead
143. As current technology changes manufacturing processes, it is likely that direct

a. labor will increase.
b. labor will decrease.
c. materials will increase.
d. materials will decrease.
144. For the work of factory employees to be considered as direct labor, the work must be
conveniently and
a. materially associated with raw materials conversion.
b. periodically associated with raw materials conversion.
c. physically associated with raw materials conversion.
d. promptly associated with raw materials conversion.
145. Which of the following is not classified as direct labor?

a. Bottlers of beer in a brewery
b. Copy machine operators at a copy shop
c. Wages of supervisors
d. Bakers in a bakery
146. Cotter pins and lubricants used irregularly in a production process are classified as
a. miscellaneous expense.
b. direct materials.
c. indirect materials.
d. nonmaterial materials.
147. Which of the following is not another name for the term manufacturing overhead?
a. Factory overhead
b. Pervasive costs
c. Burden
d. Indirect manufacturing costs
148. Because of automation, which component of product cost is declining?

a. Direct labor
b. Direct materials
c. Manufacturing overhead
d. Advertising
149. The product cost that is most difficult to associate with a product is
a. direct materials.
b. direct labor.
c. manufacturing overhead.
d. advertising.
150. Manufacturing costs that cannot be classified as either direct materials or direct labor are known
as
a. period costs.
b. nonmanufacturing costs.
c. selling and administrative expenses.
d. manufacturing overhead.
151. Which one of the following is an example of a period cost?

a. A change in benefits for the union workers who work in the New York plant of a Fortune
1000 manufacturer
b. Workers' compensation insurance on factory workers' wages allocated to the factory

c. A box cost associated with computers
d. A manager's salary for work that is done in the corporate head office
152. Which one of the following costs would not be inventoriable?

a. Period costs
b. Factory insurance costs
c. Indirect materials
d. Indirect labor costs
153. Direct materials and direct labor of a company total $6,000,000. If manufacturing overhead is
$3,000,000, what is direct labor cost?
a. $3,000,000
b. $6,000,000
c. $0
d. Cannot be determined from the information provided
154. Which of the following are period costs?

a. Raw materials
b. Direct materials and direct labor
c. Direct labor and manufacturing overhead
d. Selling expenses
155. Sales commissions are classified as

a. overhead costs
b. period costs.
c. product costs.
d. indirect labor.
156. Product costs consist of

a. direct materials and direct labor only.
b. direct materials, direct labor, and manufacturing overhead.
c. selling and administrative expenses.
d. period costs.
157. Which one of the following represents a period cost?

a. The VP of Sales' salary and benefits
b. Overhead allocated to the manufacturing operations
c. Labor costs associated with quality control
d. Fringe benefits associated with factory workers
158. Product costs are also called

a. direct costs.
b. overhead costs.
c. inventoriable costs.
d. capitalizable costs.
159. For inventoriable costs to become expenses under the matching principle,
a. the product must be finished and in stock.
b. the product must be expensed based on its percentage-of-completion.

c. the product to which they attach must be sold.
d. all accounts payable must be settled.
170. As inventoriable costs expire, they become

a. selling expenses.
b. gross profit.
c. cost of goods sold.
d. sales revenue.
171. A manufacturing company calculates cost of goods sold as follows:

a. Beginning FG inventory + cost of goods purchased – ending FG inventory.
b. Ending FG inventory – cost of goods manufactured + beginning FG inventory.
c. Beginning FG inventory – cost of goods manufactured – ending FG inventory.
d. Beginning FG inventory + cost of goods manufactured – ending FG inventory.
172. A manufacturing company reports cost of goods manufactured as a(n)

a. current asset on the balance sheet.
b. administrative expense on the income statement.
c. component in the calculation of cost of goods sold on the income statement.
d. component of the raw materials inventory on the balance sheet.
173. The subtotal, "Cost of goods manufactured" appears on

a. a merchandising company's income statement.
b. a manufacturing company's income statement.
c. both a manufacturing and a merchandising company's income statement.
d. neither a merchandising nor a manufacturing company's income statement.
174. Cost of goods manufactured in a manufacturing company is analogous to

a. Ending inventory in a merchandising company.
b. Beginning inventory in a merchandising company.
c. Cost of goods available for sale in a merchandising company.
d. Cost of goods purchased in a merchandising company.
1175. Cost of goods sold
a. only appears on merchandising companies' income statements.

b. only appears on manufacturing companies' income statements.
c. appears on both manufacturing and merchandising companies' income statements.
d. is calculated exactly the same for merchandising and manufacturing companies.
176. Which one of the following does not appear on the balance sheet of a manufacturing company?
a. Finished goods inventory
b. Work in process inventory
c. Cost of goods manufactured
d. Raw materials inventory
177. The equivalent of finished goods inventory for a merchandising firm is referred to as
a. purchases.
b. cost of goods purchased.
c. merchandise inventory.
d. raw materials inventory.
178. What term describes all activities associated with providing a product or service?
a. The manufacturing chain
b. The product chain
c. The supply chain
d. The value chain
179. How have many companies significantly lowered inventory levels and costs?
a. They use activity-based costing.
b. They utilize an enterprise resource planning system.
c. They have a just-in-time method.
d. They focus on a total quality management system.
180. Which one of the following managerial accounting approaches attempts to allocate manu-
facturing overhead in a more meaningful fashion?
a. Theory of constraints
b. Just-in-time inventory
c. Activity-based costing
d. Total-quality management
181. What is one primary benefit of an enterprise resource planning (ERP) system?
a. It reduces inventory levels.
b. It permits companies to be more streamlined in production.
c. It replaces research and development in a company.
d. It requires an increased emphasis on product quality.
182. What is “balanced” in the balanced scorecard approach?

a. The number of products produced
b. The emphasis on financial and non-financial performance measurements
c. The amount of costs allocated to products
d. The number of defects found on each product
183. For what purpose is the theory of constraints used?

a. To reduce product defects
b. To balance performance measurement
c. To identify and manage constraints that bottle-neck operations
d. To reduce inventory levels
184. Which one of the following characteristics would likely be associated with a just-in-time
inventory method?
a. Ending inventory of work in process that would allow several production runs
b. A backlog of inventory orders not yet shipped
c. Minimal finished goods inventory on hand
d. An understanding with customers that they may come to the showroom and select from
inventory on hand
185. Which one of the following is a cost that would not likely be associated with computer-
integrated manufacturing?
a. Manufacturing overhead associated with allocation of equipment depreciation

b. Direct labor costs of a welder on the production floor
c. Manufacturing overhead associated with allocation of the plant lease to the latest production
run
d. Direct materials cost with several fuse plates for a new automobile
186. Which one of the following is an activity not associated with TQM?
a. Tightening the bolts on a chassis so that the frame will not drop out
b. Redesigning the gas tank after fuel efficiency standards are not being met
c. Verifying the 10 check points associated with producing the highest quality loaf of bread
d. Ensuring that the mattress just manufactured meets the standard of comfort of a random
factory line worker
187. What is ERP’s primary benefit?

a. It can eliminate stand alone systems that do not share information easily for manage-ment’s
use.
b. It allows management to rely on the simplest way to utilize information systems in a
manufacturing environment.
c. It permits line workers to perform accounting and marketing tasks.
d. It calculates year end bonuses to a precision not available in traditional information systems
management.
188. Some companies implement systems to reduce defects in finished products with the goal of
achieving zero defects. What are these systems called?
a. Activity-based costing systems
b. Enterprise resource planning systems
c. Value chain systems
d. Total quality management systems
189. Many companies now manufacture products that are untouched by human hands. What do they
use to achieve this?
a. Activity-based costing
b. Computer-integrated manufacturing
c. Enterprise resource planning systems
d. Total quality management systems
a
190. When a company prepares a worksheet for a manufacturing company, to which column is the
Indirect Labor account extended?
a. To the adjustment columns
b. To the income statement columns
c. To the cost of goods manufactured columns
d. To the balance sheet columns
a
191. When a worksheet is prepared for a manufacturing company, an offsetting entry must be made
to balance the cost of goods manufactured columns. Where does the offsetting entry appear?
a. In the balance sheet debit column
b. In the income statement debit column
c. In the balance sheet credit column
d. In the income statement credit column
a
192. Which one of the following accounts would not appear in the cost of goods manufactured
columns of a worksheet?
a. Ending Work in Process Inventory
b. Ending Finished Goods Inventory
c. Raw Materials Inventory
d. Direct Labor
a
193. When making closing entries for a manufacturing company, to which account do all accounts
that appear on the cost of goods manufactured schedule get closed?
a. Income Summary
b. Materials, Labor, and Overhead
c. Manufacturing Summary
d. Finished Goods Inventory
194. Financial and managerial accounting are similar in that both

a. have the same primary users.
b. produce general-purpose reports.
c. have reports that are prepared quarterly and annually.
d. deal with the economic events of an enterprise.
195. The function that pertains to keeping the activities of the enterprise on track is
a. planning.
b. directing.
c. controlling.
d. accounting.
196. Property taxes on a manufacturing plant are an element of a

Product Cost Period Cost
a. Yes No
b. Yes Yes
c. No Yes
d. No No
197. For a manufacturing company, which of the following is an example of a period cost rather than
a product cost?
a. Depreciation on factory equipment
b. Wages of salespersons
c. Wages of machine operators
d. Insurance on factory equipment
198. For a manufacturing firm, cost of goods available for sale is computed by adding the beginning
finished goods inventory to
a. cost of goods purchased.
b. cost of goods manufactured.
c. net purchases.
d. total manufacturing costs.
199. If the cost of goods manufactured is less than the cost of goods sold, which of the following is
correct?
a. Finished Goods Inventory has increased.
b. Work in Process Inventory has increased.
c. Finished Goods Inventory has decreased.
d. Work in Process Inventory has decreased.
200. The principal difference between a merchandising and a manufacturing income statement is the
a. cost of goods sold section.
b. extraordinary item section.
c. operating expense section.
d. revenue section.
201. If the total manufacturing costs are greater than the cost of goods manufactured, which of the
following is correct?
a. Work in Process Inventory has increased.
b. Finished Goods Inventory has increased.
c. Work in Process Inventory has decreased.
d. Finished Goods Inventory has decreased.
202. The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred is
the
a. cost of goods manufactured.
b. total manufacturing overhead.
c. total manufacturing costs.
d. total cost of work in process.
203. The inventory accounts that show the cost of completed goods on hand and the costs applicable
to production that is only partially completed are, respectively
a. Work in Process Inventory and Raw Materials Inventory.
b. Finished Goods Inventory and Raw Materials Inventory.
c. Finished Goods Inventory and Work in Process Inventory.
d. Raw Materials Inventory and Work in Process Inventory.
204. Implementation of the total Quality Management in a firm:

a. must follow a rigid, predetermined process to be successful
b. involves some lower level managers and all senior executive
c. takes from 3-5 years
d. is a bottoms up process, with senior management involved only in the final phase.
205. Goalpost quality conformance differs from the absolute quality conformance like:
a. “generally” differs from “always”
b. “ranges” differs from “point”
c. “probable” differs from “certain”
d. “many” differs from “one”
206. the quality cost of prevention is

a. Exampled by the cost of servicing warranties
b. Refers only to zero-defect programs
c. An upstream cost
d. A downstream cost
207. Typically, as prevention costs increase, other cost of quality

a. Are not affected
b. Change, but the direction cannot be predicted
c. Increase, but slower pace
d. Decrease
208. Examples of the quality cost of prevention include all of the following, except:
a. Tuition for external training
b. Additional tolerance controls for machinery
c. Depreciation of a training room
d. An annual award for lowest rework rate
209. Appraisal costs are incurred to measure and analyze data to test the product or service in conformity
to specifications, but not to:
a. Reduce error or prevent occurrence of error
b. Change procedures
c. Change policy
d. Check on quality standard
210. The key difference(S) between internal failure cost and external failure cost is (are)
a. When the cost happens
b. Where the cost happens
c. Both when and where the cost happens
d. Whether the cost happens
211. which one of the following is not listed as a practice that successful TQM firms use to ensure
having quality suppliers?
a. Forming long term relationships with suppliers as working partners
b. Setting measures that truly reflects the needs and expectations of the supplier
c. Reducing the suppliers base
d. Selecting the suppliers based on their capability and willingness to improve the quality,
cost, delivery, flexibility, and for their dedication to continuous improvement
212. Conformance to the quality specificatons expressed as specified range around a target is
a. Endzone conformance
b. Target conformance
c. Goalpost conformance
d. Absolute quality conformance
213. conformance that requires all the product or services to meet exactly the target value with no
variation allowed is
a. Endzone conformance
b. Target conformance
c. Goalpost conformance
d. Absolute quality conformance
214. just in time purchasing requires

a. Larger and less frequent purchase orders
b. Smaller and less frequent purchase orders

c. Smaller and more frequent purchase orders
d. Larger and more frequent purchase order
215. demand pull system in which each component in a production line is produced immediately as
needed by the next step in the production line is referred to as
a. Just in time purchasing
b. Materials requirements planning
c. Relevant total costs
d. Economic order quantity
216. all of the following are the potential financial benefits of the just in time purchasing except:
a. lower investment in the inventory
b. Lower investment in plant space in the inventories
c. Reducing the risk of obsolescence
d. Reducing the manufacturing lead time
217. cost quality reports usually do not consider the

a. External failure cost
b. Opportunity cost
c. Internal failure cost
d. Appraisal cost
218. changing to an activity based costing management system will not

a. Change the way that the resources are allocated
b. Change the way that the cost are allocated
c. Change all the people’s job
d. Change the way that the performance is evaluated
219. resistance to changing a management accounting and control system can occur for the reasons listed
below except
a. Employees are set in their ways and will act defensively
b. An employee’s compensation and rewards may be altered
c. The balance of power may shift unfavorably for the employee
d. Employees have to wait for a vote of shareholders before a MACS can be changed
220. one common mistake that managers make when changing to a new cost management system is
a. They involve to many in making the change
b. They take too long to implement the change
c. They over-budget for the cost of the change
d. They try to change too many things simultaneously
221. the just in time manufacturing system is also called the

a. Job in training system
b. Job in transit system
c. Zero cost system
d. Zero inventories system
222. the traditional focus in management accounting has been to develop

a. Only quantitative performance measure
b. Only qualitative performance measures.

c. Both quantitative and qualitative measure
d. Neither quantitative and qualitative measure
223. a well-designed MACS develop and uses

a. Both qualitative and quantitative information for control, motivation, and performance
evaluation
b. Only quantitative information for control, motivation, and performance evaluation
c. Only qualitative information for control, motivation and performance evaluation
224. In the contemporary business environment, cost management focuses on

a. Financial reporting and cost analysis
b. Common emphasis on standardization and standard occur
c. Development and implementation of the business strategy
d. All of the above
225. the overall recognition of the importance of the cost relationships among the activities in the value
chain and the process of managing those cost relationships among the activities in the value chain is
called
a. The theory of constraint
b. The value chain
c. Activity based management activities
d. Strategic cost management
226. value engineering can result in the

a. Product design
b. Changes in material specification
c. Modifications in the process method
d. All of the above
227. strategic cost management has emerged from a blending of:

a. Cost driver analysis
b. Strategic position analysis
c. Value chain analysis
d. All of the above
228. strategic planning is different from operational planning is that the operational planning:
a. Involves large sum of money
b. Deals with determining production levels for next quarter
c. Involves only large range goals
d. Operational and strategic planning are the same
229. a system being implemented to reduce defects in finished products with the goal of achieving zero
defects refers to:
a. Activity based costing system
b. Enterprise resource planning system
c. Value chain system
d. Total quality management system
230. which of the following emerging themes in the cost accounting deals with managers striving to
create an environment which will enable workers to manufacture defects products
a. Customer orientations
b. Global competition
c. Total quality management
d. Advance in information technology
231. total quality management emphasizes

a. Zero defects
b. Continuous improvement
c. An elimination of waste
d. All of the above
232. a primary objective in measuring productivity is to improve operations either by using fewer inputs
to improve the same output or to produce:
a. More effectively
b. With fewer constraint
c. More output with the same inputs
d. More outputs with more inputs
233. which of the following assesses the productivity efficiency for all inputs combined in order to value
change in productivity?
a. Partial productivity measurement
b. Profile productivity management
c. Profit linked productivity measurement
d. Total productivity measurement
234.a primary objective in measuring productivity is to improve operations either by using fewer inputs
to produce the same output, or to produce:
a. More effectively
b. With fewer constraint
c. More output with the same inputs
d. More outputs with more inputs
235. changes in the productivity of different types of resources are not always:
a. Measurable and observable
b. In the same direction or at an equal pace
c. Unique and differentiated
d. Simultaneous and positive
236. how can productivity be improved?

a. Using less inputs to produce the same outputs
b. Using the same input to produce more output
c. Improve input trade off efficiency by using a less costly mix of input
d. All of the above
237. one major problem in measuring productivity in non profit organization is the absence of revenue as
the:
a. Common measure for inputs
b. Common measure for outputs
c. Basis for financial reporting

d. Common denominator with commercial firms
238. productivity increases if:

a. Less output is produce with more input
b. Using the same input to produce more output
c. The same output is produced with fewer inputs
d. Laborers put in more effort
239. an advantage of partial measures of productivity is that it:

a. Allow managers to focus on the use of particular input
b. Is a complex measure that is difficult to interpret by everyone in the organization
c. Looks at the effects of multiple inputs
d. Is a perfect measure of performance
240. Characteristics of total management include:

a. Focusing on customer satisfaction
b. Striving on continuous improvement
c. Involvement of the entire workforce
d. All of the following
241. a technique by which the companies analyze fluctuations in a process is called:

a. Statistical process control
b. A quality audit
c. Benchmarking
d. Pareto analysis
242. focusing on how best in class companies achieve their results is referred to as:
a. Reverse engineering
b. Results benchmarking
c. Process benchmarking
d. Competitive benchmarking
243. which of the following is not an important principle of TQM?

a. The organization should focus on improving goods from the customers view point
b. Everyone in the organization is required to participate
c. There should be a system of planning, controlling, and decision making
d. Complacency is the norm
244. which of the following is the correct sequence of the value chain?
a. Design, research and development, production, supply, marketing, customer service,
distribution
b. Research and development, design, supply, production, marketing, distribution, and
customer service
c. Research and development, design, supply, production, marketing, customer service,
distribution
d. Supply, research and development, design, production, marketing, distribution, customer
service
245. an approach to developing new way to perform existing activities is called

a. Process value analysis

b. Re-engineering
c. Caveat analysis
d. Benchmarking
246. a danger in process reengineering is that:

a. Non value added activities may be eliminated
b. Some resources may no longer be required
c. Employee morale may suffer
d. All of the above
247. the goal of the total quality control is

a. To have less defective material than good material
b. To permit defects as long as they do not exceed a certain level
c. To have zero defect
d. All of the above
248. cost incurred to improve the product quality by precluding product defects are known as:
a. Internal failure cost
b. External failure cost
c. Appraisal cost
d. Prevention cost
249. which of the following represents an external failure cost

a. Reprocessing a defective product before shipment
b. Replacing a defective product after shipment
c. Hiring for quality
d. Inspecting products during production
250. if a company has high failure cost, the best course of action reduce total quality costs would be to :
a. Increase prevention cost
b. Increase the costs associated with compliance
c. Increase the cost of non-compliance
d. Increase appraisal cost
251. continuous improvement is synonymous with:

a. Process benchmarking
b. Total quality management
c. Management by objective
d. Management by exception
252. the quality costs that are incurred to determine whether particular units of product meet quality
standards are:
a. Appraisal costs
b. External failure costs
c. Internal failure costs
d. Prevention costs
253. the cost of downtime on machines while rework is being performed is a

a. Appraisal costs

d. Prevention costs
254. the costs of reworking the defective units to make them saleable are classified as
a. Appraisal costs
d. Prevention cost
255. the costs caused by the inefficiency in prevention activities are:

a. Non value added costs
b. Value added costs
c. Neither of the two
d. Both A and B
256. the ultimate purpose of the competitor analysis is to

a. Identify the competition
b. Determine the competition’s strength and weaknesses
c. Identify the competitions major customers
d. Understand and predict the behavior of the competition
257. target marketing analysis involves

a. Analyze the firm’s input market
b. Understanding and segmenting the firm’s customer market
c. Analyzing the firm’s market structure
d. Deciding on whether to offer a new product line
258. which of the following is defining characteristic of the supply chain management?
a. Focuses on the sharing of the information with the suppliers and customers
b. Focuses on redesigning processes
c. Focuses in improving quality
d. Focuses on strategic alliances
259. the process of dividing all potential customers into smaller groups of buyers with distinct needs,
characteristics, or behavior who might require a similar product or service mix, is called
a. Strategic planning
b. Product positioning
c. Market segmentation
d. Objective setting
260. JIT is a system that seeks improvement by reducing inventories to the absolute minimum levels
possible. It means that
a. Raw materials are purchased just in time to go into the production
b. Sub-assemblies or component parts are completed just in time the materials needed are
purchased
c. Products are completed just in time an order is received from customers
d. None of the above
261. Inventory holding costs typically include:

A. clerical costs of purchase-order preparation.

B. costs of deterioration, theft, or spoilage.
C. costs associated with lost sales to customers.
D. forgone interest on money tied up in inventory.
E. items "B" And "D" above.
262. Inventory holding costs would typically include all of the following except:
A. insurance.
B. theft.
C. transportation.
D. obsolescence.
E. warehouse rent.
263. At the economic order quantity:

A. total annual inventory costs, holding costs, and ordering costs are all minimized.
B. total annual inventory costs and holding costs are minimized.
C. total annual inventory costs are minimized, and holding costs equal ordering costs.
D. total annual inventory costs are minimized, and holding costs exceed ordering costs.
E. total annual inventory costs are minimized, and ordering costs exceed holding costs.
264. When comparing EOQ and JIT inventory systems, which of the following statements is false?
A. The EOQ approach takes the viewpoint that some inventory is necessary.
B. The EOQ system assumes a constant order quantity.
C. JIT argues that inventory investments should be minimized.
D. The EOQ system focuses on acquisition and holding costs.
E. JIT argues that safety stocks are necessary to reduce the probability of a stock shortage.
265. in JIT, the flow of goods is controlled by a “Pull approach”. It means that
a. work is initiated only in response to customers order
b. Customers are pulled to buy more units to reduce the company’s inventory
c. Production supervisors see to it that there is always something to do to keep everyone busy.
d. Warehouses should always be full to be sure that customer demands are always met.
266. JIT purchasing can be used by

a. Retailer
b. Wholesaler
c. Manufacturer
d. All of the above
267. Which of the following statements about JIT is true?

a. Under JIT, partially completed units are pushed from one workstation to another to ensure
all workstations have enough work to keep busy
b. A company will typically have fewer suppliers under JIT than under conventional system
c. For JIT to operate successfully, all similar pieces of equipment must be grouped together
d. JIT requires an increase in funds to finance additional inventories
268. under JIT

a. WIP inventories are maximized in order to ensure that all workstations have enough work to
stay busy
b. The plant floor is laid out in a functional format with similar machines grouped together
c. Focused factories are used
d. The plant floors laid out in a single flow line through which all products passes
269. Companies adopt JIT purchasing system to reduce carrying costs by eliminating inventories and
increasing the deliveries made by suppliers. Hence, companies that adopt the system often experience
a. Less need for linkage with the suppliers’ computerized order entry system
b. Fewer deliveries from suppliers
c. A decrease in the number of suppliers
d. A greater need for inspection of goods as the goods are received
270. Which of the following is among the benefits of adopting JIT system
a. Reduction in the number of deliveries of materials
b. Increase in the number of suppliers
c. Performance of non-value added activities
d. Maximization of standard delivery quality
271. a company switched from the traditional to JIT system, the change will
a. Decrease the company’s inventory as a percentage of the total assets
b. Decrease in the company’s inventory turn over
c. Increase the company’s inventory as a percentage of total assets
d. Not affect the company’s turn over and its inventory as a percentage of total assets
272. The primary objective of JIT processing is to

a. Identify relevant activity cost drivers
b. Accumulate overhead in the activity cost pool
c. Identify NVA activities
d. Eliminate or reduce the inventories
273. Ideally, the number of units that should be produced in a just in time manufacturing system is equal
to
a. The maximum productive capacity for the current period
b. Actual customer demand for the current period
c. Budgeted customer demand for the current period
d. Budgeted customer demand for the following period
274. it is an approach to continuous improvement that focuses on serving customers and uses front line
workers to identify and solve problems systematically
a. Total quantity management
b. JIT system
c. Total quality management
d. ABC system
276. costs incurred on quality related processes to prevent defects, or are incurred as a result of defects
occurring
a. Standard cost
b. Quality costs
c. Cost of scrap
d. Wastage
277. These costs are incurred to keep the defective products from falling into the hands of the customers,
are composed of
a. Prevention and appraisal costs
b. Failure cost
c. Quality cost
d. Appraisal and inspection cost
.
279. Nonconformance costs are composed of the following
a. Prevention and appraisal cost
b. Internal and external failure cost
c. Costs of technical support
d. Cost of testing
Questions 197 to 204 are based on the following choices: (Matching Type)
Identity the following by their type of quality cost.
a. Preventive costs
b. Appraisal costs
d. External failure costs
1. Scrap
Internal Failure Costs
2. Recalls
External Failure Costs
3. Warranty work
4. Testing
Appraisal Costs
5. Vendor quality
Preventive Costs
6. Returned merchandise
7. Preventive machine maintenance

Preventive Costs
8. Operator training
Preventive Costs
9. The just-in-time (JIT) philosophy attempts to reduce setup times, which will:
a. increase batch sizes
b. not affect batch sizes
c. increase within-batch wait time

d. decrease within-batch wait time
10. What do just-in-time (JIT) manufacturers demand from their vendors?

a. High quality materials
b. Low cost materials
c. On-time deliveries
d. All of the above
11. How are the objectives of just-in-time (JIT) manufacturing achieved?

a. Product-oriented production layout
b. Employee involvement
c. Supplier partnering
d. All of the above
12. What are the objectives of just-in-time (JIT) manufacturing?

a. Eliminating waste
b. Increasing inventory levels
c. Increased number of inspections
d. A process orientation
13. Reduction of inventory is a ____ principle.

a. Just in Time
b. Traditional
14. Set up time is disregarded as an improvement priority under the ____ manufacturing
concept.
a. Traditional
b. Just in Time
15. ____ manufacturing philosophy emphasizes quality and zero defects.

a. Traditional
b. Just In Time
16. ____ manufacturing deals with several suppliers in hopes of finding the better price.
a. Traditional
b. Just-In-Time
17. Just-in-time manufacturing philosophy reduces the following except

a. Inventory
b. setup time
c. lead time
d. overhead costs
18. Traditional manufacturing emphasizes the following except

a. Team oriented employee involvement
b. Process-oriented layout
c. Push manufacturing
d. Increase lead time
19. Which of the following is considered nonvalue- added lead time?

a. Packing
b. Time moving from operation to operation
c. Inspections
d. all of the above
20. Which of the following is used to reduce setup time?

a. Reduce the number of inventory in batches
b. Increase the number of setups
c. Increase inventory levels
d. Increase the number of inventory in batches.
21. The Just-In-Time concept emphasizes the product-oriented layout in the manufacturing
area. All the following are benefits on this concept except
a. Reduction of material movement
b. Production process are grouped together
c. Work-in-process inventory is reduced.
d. Production activities are arranged in single cells
22. Under a JIT environment, employees have the responsibility and authority to
a. purchase inventory
b. determine output amounts
c. make decisions about operations, rather than waiting for management.
d. make engineering changes
23. Which of the following drives work in process inventory levels higher?
a. Machine breakdowns
b. Production rate losses
c. Rework processes
d. All of the above
24. Which of the following is characteristic of a just-in-time (JIT) production layout?

a. Decentralized maintenance
b. Small production batches
c. Organization around processes

d. Both A and B
25. In a just-in-time (JIT) environment, process problems are more visible than they are in
a traditional environment because:
a. inventories are maintained at higher levels
b. process problems cause production to shut down immediately
c. the push manufacturing system causes inventories to increase
d. the lack of work in process inventory creates the problems
26. Examples of transforming a traditional manufacturing environment to a Just-In-Time

environment is to do all of the following except
a. Form partnerships with reliable suppliers.
b. Reorganize operational processes to organized product lines.
c. Train employees to perform various operations.
d. Increase raw materials to produce more thereby increasing finished goods
inventory to have to sell
27. Which of the following is characteristic of a just-in-time (JIT) system?

a. Fewer work in process account transactions
b. Work in process and raw materials accounts combined
c. Elimination of the direct labor account
d. All of the above
28. Which of the following is characteristic of a traditional cost system?

a. Many work in process account transactions
b. Reliance on financial performance measures
c. Many process control points
d. All of the above
29. Which of the following is an example of a nonfinancial measure?

a. Lead time
b. Setup time
c. Units scrapped
d. All of the above
30. Which of the following is best suited to providing timely and focused performance
information?
a. Nonfinancial information
b. Financial accounting information

c. Cost accounting information
d. Variance analysis
31. Accounting for Just-In-Time operations requires fewer transactions because

a. large batches of inventory are combined in a smaller number of transactions
b. costs are accumulated in departments and then transferred to the next department
c. combined material and conversion costs are transferred to finished goods.
d. costs are transferred from department to department thus allowing for better
controls in costs
32. Just-In-Time accounting has fewer transactions because

a. all manufacturing costs are combined in one account called Raw and In Process
Inventory
b. employees in production cells are required to perform various tasks, some are
considered direct costs and some are indirect costs. Therefore the distinction is
eliminated.
c. Less movement of inventory between department to department.
33. The budgeted cell conversion cost rate includes which of the following?
a. factory overhead only
b. direct labor and direct materials only
c. direct labor, direct materials, and factory overhead
d. direct labor and factory overhead only
34. The local college is aggressively working in reducing the time that a student needs to
enroll for each semester. All except one of the following changes is helping in their
efforts.
a. Counselors are specializing in common degree plans.
b. One application is good at the Community college and at the transferring
University.
c. A one stop area includes registration, admissions, advising, and ID’s. Each
working closely with each other.
d. Reduce the number of degrees being offered.
35. The college would like to increase enrollment by following the just-in-time principle by
streamlining the enrollment process. Which of the following would not fall in line with
the college goal?
a. reduce the requirements necessary to enroll.

b. relocate counselors, academic advisors, and financial aid specialists for a major
to a central location.
c. train counselors, academic advisors, and financial aid specialists to serve like
majors.
d. Cross train counselors, academic advisors, and financial aid specialists.
36. Which of the following statements is correct?

a. Costs of controlling quality include prevention and appraisal costs
b. Costs of failing to control quality include internal and external failure costs
c. A and B are both correct
d. A and B are both incorrect.
37. All of the following except one are examples of prevention costs
a. preventive maintenance
b. operator training
c. design engineering
d. testing activities
38. The following are examples of external failure costs except

a. warranty work
b. returned merchandise
c. rework
d. correcting invoice errors
39. Which of the following statements best describes the relationship between costs of
quality?
a. The more that is spent on prevention and appraisal costs, the overall costs of quality
will be reduced
b. The more that is spent on prevention and appraisal costs, the overall costs of quality
will remain the same.
c. Overtime prevention and appraisal costs will eliminate all internal and external costs.
d. Internal and external costs will increase as prevention and appraisal costs increase.
40. The following are examples of nonvalue added activities except

a. Inspections
b. Rework
c. preventive maintenance
d. warranties
41. Of the following, identify the favorable attributes of the just-in-time manufacturing
system.
(a) having extra inventory to ensure that manufacturing will not run out of direct
materials.
(b) cross training of employees
(c) giving employees additional authority and responsibility.
(d) product oriented layout.
a. A,b,c
b. C,a,d
c. B,c,d
d. A,b,d
70. Which of the following is necessary for any valid performance measurement?
a. It must be part of the financial accounting system in use.
b. It must be quantifiable.
c. Goal congruence must be promoted by its use.
d. It must be financial in nature.
71. Productivity is measured by the

a. total quantity of output generated from a limited amount of input during a time
period.
b. quantity of good output generated from a specific amount of input during a time
period.
c. quantity of good output generated from the quantity of good input used during a
time period.
d. total quantity of input used to generate total quantity of output for a time period.
72. Failure Corporation is a manufacturer of a versatile statistical calculator. The following

information is a summary of defective and returned units for the previous year.
Total defective units 1,000
Number of units reworked 750
Number of customer units returned 150
Profit for a good unit P40
Profit for a defective unit P25
Cost to rework a defective unit P10
Cost of a returned unit P15
Total prevention cost P10,000
Total appraisal cost P5,000
The total quality cost is

a. P15,000. c. P28,500.
b. P15,750. d. P11,250.
Failure costs:
Rework cost (750 units x P10) P7,500
Returned units (150 x P15) 2,250

Not reworked (250 units x P15) 3,750 P13,500
Prevention costs 10,000
Appraisal cost 5,000
Total quality costs P28,500
73. A small manufacturing company recently stated its sales goal for a period was P100,000. At
this level of activity, its budgeted expenses were P80,000. Its actual sales were P100,000,
but its actual expenses were P85,000. This company operated
a. effectively and efficiently. c. effectively but not efficiently.
b. neither effectively nor efficiently. d. efficiently but not effectively.
MULTIPLE CHOICE: PROBLEMS

Question Nos. 1 and 2 are based on the following:
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 per
year. The machine hours used by each product and the quantity produced of each product are as
follows:
Machine Hours Quantity Produced
4-inch 6,000 15,000 rolls
6-inch 10,000 12,500 rolls
9-inch 8,000 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 P840,000; however, these costs are now
traceable to each cell.
Cell, 4-inch P220,000
Cell, 6-inch 300,000
Cell, 9-inch 320,000
1. The maintenance cost per roll of 4-inch insulation before JIT is installed would be
a. P24.00 c. P14.00
b. P17.50 d. P13.16
SUPPORTING ANALYSIS/COMPUTATION:
Maintenance cost per MH: (P840,000 ÷ 24,000) P25
Maintenance cost per roll, 4-Inch (6,000 x P35 ÷ 15,000) P14
2. The maintenance cost per roll of 9-inch insulation before JIT is installed would be
a. P17.50 c. P28.57
b. P25.00 d. P75.00
Maintenance cost per unit, 9-Inch: (P320,000 ÷ 11,200) = P28.57
3. 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 materials costs. The cell started and completed 700 units. The cell
process time for the product is 15 minutes per unit.
What is the total product cost for the period?
a. P35,000 c. P40,000
b. P38,750 d. P43,750
Materials cost (700 x P12.50) P 8,750
Conversion costs (700 x 0.25 x P200) 35,000
Total P43,750
4. Big Computers has the following personnel:

Seven assemblers: manufacture the mother boards
One owner: writes the paychecks
Two inspectors: inspect the final computers
Three fabricators: make the computer cases
One computer programmer: runs all of the bookkeeping for the accounting records
Two shipping clerks; ship computers to the warehouse
What would be the value-added labor ratio for this company?
a. 4/8 or 37.5 percent c. 5/8 or 62.5 percent
b. ½ or 50 percent d. ¾ or 75 percent
Value-added labor:
Assemblers 7 personnel
Fabricators 3 personnel
Total 10 personnel
Value-added activity ratio: (10 ÷ 16) 5/8 or 62.5%
Questions 5 & 6 are based on the following information.

At the beginning of 2005, Peterson Company installed a JIT purchasing and manufacturing system. The
following information has been gathered about one of the company's products:
Theoretical annual capacity 2,200
Actual production 2,000
Production hours available 800
On-time deliveries 900
Total deliveries 950
5. The theoretical velocity is:

a. 2.32 units per hour c. 2.5 units per hour
b. 2.44 units per hour d. 2.75 units per hour
Theoretical velocity = Theoretical capacity ÷ Available hours
(2,200 units ÷ 800 hours) = 2.75 units per hour
6. Actual velocity is:

a. 2.5 units per hour c. 2.32 units per hour
b. 2.75 units per hour d. 2.44 units per hour
Actual Velocity: Actual Production ÷ Available Hours
(2,000 ÷ 800) = 2.5 units per hour
SHORT PROBLEMS:
PROBLEM 1:
Kaya pa ba Corporation manufactures filing cabinets in two operations machining and finishing. It
provides the following information.
Machining Finishing
Annual capacity 100000units 80000 units
Annual Production 80000 units 80000units
Fixed Operating Cost(excluding
direct materials) P 6400000 P4000000
Fixed Operating Cost per Unit produced 80 per unit 50 per unit
Each cabinet sells for P720 and has direct materials costs of P320 incurred at the start of the machining
operation. Kaya pa ba has no other variable costs. Kaya pa ba can sell whatever output it produces. The
following requirements refer only to the preceding data. There is no connection between the
requirements.
Required:
1. Kaya pa ba is considering using some modern jigs and tools in the finishing operation
that would increase annual finishing output by 1,000 units. The annual cost of these jigs
and tool is P300,000. Should Kaya pa ba acquire these tools?
2. The production manager of the machining department has submitted a proposal to do faster
setups that would increase the annual capacity of the machining department by 10,000 units and
costs 50,000 per year. Should Kaya pa ba implement the change?
SUPPORTING ANALYSIS
Requirement 1
Finishing is a bottleneck operation. Hence, producing 1,000 more units will generate additional
throughput contribution and operating income.
Increase in throughput contribution (P72 – P32) x 1,000 P40,000

Incremental costs of the jigs and tools 30,000
Net benefit of investing in jigs and tools P10,000
Kaya pa ba should invest in the modern jigs and tools because the benefit of higher throughput
contribution of P40,000 exceeds the cost of P30,000.
Requirement 2
The Machining Department has excess capacity and is not a bottleneck operation. Increasing its
capacity further will not increase throughput contribution. There is, therefore, no benefit from
spending P5,000 to increase the Machining Department’s capacity by 10,000 units. Kaya pa ba
should not implement the change to do setups faster.
PROBLEM 2:
Refer to the information in problem above in answering the following requirements. There is no
connection between the requirements.
REQUIRED:
1. An outside contractor offers to do the finishing operation for 12,000 units at P100 per
unit, double the 50 per unit that it costs Kaya pa ba to do the finishing in-house. Should
Kaya pa ba accept the subcontractor’s offer?
2. The Rainee Corporation offers to machine 4000 units at 40 per unit, half of the 80 per unit that it
costs Kaya pa ba to do the machine in-house. Should Kaya pa ba accept the subcontractor’s
offer?
SUPPORTING ANALYSIS
Requirement 1
Finishing is a bottleneck operation. Hence, getting an outside contractor to produce 12,000 units
will increase throughput contribution.
Increase in throughput contribution (P72 – P32) x 12,000 P480,000

Incremental contracting costs P10 x 12,000 120,000
Net benefit of contracting 12,000 units of finishing P360,000
Kaya pa ba should contract with an outside contractor to do 12,000 units of finishing at P10 per
unit because the benefit of higher throughput contribution of P480,000 exceeds the cost of
P120,000. The fact that the costs of P10 are double Kaya pa ba finishing cost of P5 per unit are
irrelevant.
Requirement 2
Operating costs in the Machining Department of P640,00, or P8 per unit, are fixed costs. Kaya
pa ba will not save any of these costs by subcontracting machining of 4,000 units to Rainee
Corporation. Total costs will be greater by P16,000 (P4 per unit x 4,000 units) under the
subcontracting alternative. Machining more filing cabinets will not increase throughput
contribution, which is constrained by the finishing capacity. Kaya pa ba should not accept
Rainee’s offer. The fact that Rainee’s costs of machining per unit are half of what it costs Kaya
pa ba in-house is irrelevant.
PROBLEM 3:
Refer to the information in last problem3 in answering the following requirements. There is no
connection between the requirements.
REQUIRED:
1. Kaya pa ba produces 2,000 defective units at the machining operation. What is the cost
to Kaya pa ba of the defective items produce? Explain your answer.
2. Kaya pa ba produces 2,000 defective units at the finishing operation. What is the costs to Kaya
pa ba of the defective items produced? Explain your answer.
SUPPORTING ANALYSIS
Requirement 1
Cost of defective unit at machining operation which is not a bottleneck operation is the loss in
direct materials (variable costs) of P32 per unit. Producing 2,000 units of defectives does not
result in loss of throughput contribution. Despite the defective production, machining can
produce and transfer 80,000 units to finishing. Therefore, cost of 2,000 defective units at the
machining operation is P32 x 2,000 = P64,000.
Requirement 2
A defective unit produced at the bottleneck finishing operation costs Zashi materials costs plus
the opportunity cost of lost throughput contribution. Bottleneck capacity not wasted in
producing defective units could be used to generate additional sales and throughput contribution.
Cost of 2,000 defective units at the finishing operation is:
Lost of direct materials P32 x 2,000 P 64,000

Forgone throughput contribution (P72 – P32) x 2,000 80,000
Total cost of 2,000 defective units P144,000
Alternatively, the cost of 2,000 defective units at the finishing operation can be calculated as the
lost revenue of P72 x 2,000 = P144,000. This line of reasoning takes the position that direct
materials costs of P32 x 2,000 = P64,000 and all fixed operating costs in the machining and
finishing operations would be incurred anyway whether a defective or good unit is produced.
The cost of producing a defective unit is the revenue lost of P144,000.
PROBLEM 4:
The Adoracion Company incurred these cost of quality
2018 2019
Calibration P75000 P100000
Product design 150000 175000
Product liability 125000 75000
Product recalls 400000 200000
Retesting 250000 200000
Rework 325000 100000
Testing 50000 150000
Training 75000 100000
Warranty repairs 150000 75000
Required:
1. Prepare cost of quality report that classifies each of the cost under the proper cost of
quality.
2. Indicate whether the costs are increasing or decreasing and by how much?
SUPPORTING ANALYSIS
The Adoracion Company

Comparative Costs of Quality Report
Increase
Costs Categories 2005 2006 (Decrease)
Prevention costs:
Training P 75,000 P 100,000 P25,000
Product design 150,000 175,000 25,000
Total prevention 225,000 275,000 50,000
Appraisal costs:
Testing 50,000 150,000 100,000
Calibration 75,000 100,000 25,000
Total appraisal 125,000 250,000 125,000
Internal failure costs:

Rework 325,000 100,000 (225,000)
Retesting 250,000 200,000 (50,000)
Total internal failure 575,000 300,000 (275,000)
External failure costs:

Warranty repairs 150,000 75,000 (75,000)
Product recalls 400,000 200,000 (200,000)
Product liability 125,000 75,000 (50,000)
Total external failure 675,000 350,000 (325,000)
Total costs of quality P1,600,000 P1,175,000 P (425,000)
PROBLEM 5:
PROBLEM 6:
COMPREHENSIVE PROBLEMS:
PROBLEM1:
The Besty Corp. manufactures and sells 3,000 premium quality multimedia projectors at P12,000 per
unit each year. At the current production level, the firms manufacturing cost include variable costs of
P2500 per unit and annual fixed cost of P6,000,000. Additional selling administrative, and other
expenses, not including 15 percent sales commissions, are P10,000,000 per year.
The new model, introduced a year ago, has experienced a flickering problem. On average the firm has to
rework 40 percent of the completed units. The firm still has to repair under warranty 15 percent of the
units shipped. The additional work required for rework and repair makes it necessary for the firm to add
additional capacity with annual fixed costs of P1,800,000. The variable costs per unit are P2,000 for
rework and P2,500, including transportation cost for repair.
The chief engineer, Beast has proposed a modified manufacturing process that will almost eliminate the
flickering problem. The new process will require P12,000,000 for new equipment and installation, and
P3,000,000 for training. Beast believes that current appraisal costs of P600,000 per year and P50 per unit
can be eliminated within one year after the installation of the new process. The firm currently inspects all
the units before shipment. Furthermore, warranty repair cost will be only P1,000 for no more than 5
percent of the units shipped.
Besty believes that none of the fixed costs of rework or repair can be saved and that a new model will be
introduced in three years. The new technology will most likely render the current equipment obsolete.
Requirement:
1. What are the additional cost of choosing the new process?
2. What are the benefits of choosing the new process?
3. Should jimmy use the new process?
4. What factors should be considered before making the final decisions?
5. A member of the board is very concerned about the substantial amount of additional funds
needed for the new process. Because the current model will be replaced in the about three years,
the board members suggests that the firm should take no action and the problem will go away in
three years. Do you agree?
SUPPORTING ANALYSIS:
Requirement 1
Cost of new equipment and installation P12,000,000
Training 3,000,000
Total additional cost of the new process P15,000,000
Requirement 2
Quality cost if no change is made:
Rework 3,000 x 40% x P2,000 = P 2,400,000

Repair 3,000 x 15% x P2,500 = 1,125,000
Appraisal 600,000
Inspection 3,000 x P50 = 150,000
Lost contribution:
Contribution margin per unitP12,000 x 85% - P2,500 = P7,700
Lost sales 3,000  0.8 – 3,000 = x 750 5,775,000
Total current cost of quality P10,050,000
Quality cost with the new process:

Warranty repair3,000  0.8 x 5% x P1,000 = – 187,500
Savings from the new process each year P 9,862,500
Years effective x 3
Total P29,587,500
Appraisal and inspection cost in Year 1 – 750,000

Total savings over 3 years P28,837,500
Requirement 3
Yes. The cost of the new process is P15,000,000 and the expected benefits is P28,837,500 over
three years. The firm can expect to earn a return of over 90%.
Requirement 4
The following factors should be considered before making the final decision:
a. Accuracy of cost estimates including

 Contribution margin per unit
 Costs of current repair and rework
 Cost of repair with the new process
 Cost of the new process
b. Reliability of estimations of
 Rates of rework and repair
 Lost sales
 Amount of time before the current product become obsolete
c. Reaction of competitors
Requirement 5
The member of the board would be right if we ignore the financial payoff of the new process and
if the firm is going to be in business for only three years. Having high quality products,
especially for a high-end product such as the one the firm is selling, is crucial for a long term
success.
PROBLEM 2:
Canada industry manufactures two types of refrigerators, Victoria and Vancouver. Information on each
refrigerator is as follows.
VICTORIA VANCOUVER
Units manufactured and sold 10000 units 5000 units
Selling price P2000 P1500
Variable costs per unit 1200 800
Hours spent on design 6000 1000
Testing and inspection hours per unit 1 0.5
Percentage of units reworked in plant 5% 10%
Rework costs per refrigerator 500 400
Percentage of unit repaired at customer site 4% 8%
Repair cost per refrigerator 600 450
Estimated lost sales from poor quality - 300UNITS
The labor rates per hour for various activities are as follows.
Design P75 per hour
Testing and inspection P40 per hour
Required:
1. Calculate the cost of quality for Victoria.
2. Calculate the costs of quality for Vancouver.
3. Classified into prevention, appraisal, internal failure and external failure categories.
4. For each type of refrigerator, calculate the ratio of each COQ category as a percentage of
revenues.
5. Compare and comment on the cost of quality for Victoria and Vancouver
6. Give two examples of nonfinancial quality measures that Canada industry could monitor as
part of a total quality control effort.
PROBLEM 3:
The management of Boogie Company thinks that total costs of quality can be reduced by increasing
expenditure in certain key costs of quality categories. The following costs of quality have been identified
by management.
Cost of quality Costs

 Rework P6000
 Recalls 15000
 Reengineering efforts 9000
 Repair 12000
 Replacements 12000
 Retesting 5000
 Supervision 18000
 Scrap 9000
 Training 15000
 Testing of incoming materials 7000
 Inspection 18000
 Downtime 10000
 Product liability insurance 9000
 Quality audits 5000
 Continuous improvement 1000
 Warranty repair 15000
Required
1. Classify these costs into the four costs of quality categories.
2. Determine the total pesos being spent on each of the categories.
3. Based on the company’s expenditures by cost of quality categories, on which costs category
should the company concentrate its efforts to which cost category should the company
concentrate its efforts to decrease its overall cost of quality.
Requirement 1
Internal External
Costs of Quality Prevention Appraisal Failure Failure
Rework P 6,000
Recalls P15,000
Reengineering efforts P 9,000
Repair 12,000
Replacements 12,000
Retesting 5,000
Supervision P18,000
Scrap 9,000
Training 15,000
Testing of incoming
materials 7,000
Inspection of work in
process 18,000
Downtime 10,000
Product liability insurance 9,000
Quality audits 5,000
Continuous improvement 1,000
Warranty repairs 15,000
Requirement 2
Total spent by
category P25,000 P48,000 P42,000 P51,000
Requirement 3
The company is currently spending the least on preventive costs. They should concentrate their
efforts on preventive costs because they prevent poor quality products from being manufactured.
By increasing amount spent on prevention, they could reduce spending on the other cost of
quality categories.
PROBLEM 4:
The Bali Company manufactures custom-designed milling machines and incurred the following cost of
equity in 2018 and 2019:
2019 2018
Rework P200000 P250000
Quality Manual 40000 50000
Product design 300000 270000
Testing 80000 60000
Retesting 50000 90000
Product recalls 360000 500000
Field services 230000 350000
Disposal of defective units 90000 85000
The total sales in each of the two years were P6 000 000. The firm’s cost of goods sold is typically one-
third of the net sales.
Required:
1. Prepare a cost-of-quality report that classifies the firm’s costs under the proper cost-
quality category.
2. Calculate the ratio of each cost-of-quality category to sales in each of the two years. Comment
on the trends in cost of quality between 2018 and 2019.
3. Give six examples of non-financial measures that Bali might want to monitor as part of a total
quality management effort.
Requirements 1 & 2
Bali Company
Cost of Quality Report
For 2005 and 2006
Cost of Quality 2006 2005

Category Peso % Peso %
Prevention costs:
Quality manual P 40,000 P 50,000
Product design 300,000 P 340,000 5.67 270,000 P320,000 5.33
Appraisal costs:
Testing P 80,000 80,000 1.33 P 60,000 60,000 1.00
Internal failure costs:
Rework P200,000 P250,000
Retesting 50,000 90,000
Disposal of defective units 90,000 340,000 5.67 85,000 425,000 7.08
External failure costs:
Product recalls P360,000 P500,000
Field service 230,000 590,000 9.83 350,000 850,000 14.17
Total cost of quality P1,350,000 22.50 P1,655,000 27.58
a. There were slight increases in both prevention and appraisal costs from 2005 to 2006. Each of
these two cost of quality increased by approximately 0.33 percent of the total sales. These two
costs increased by P40,000 over the two years.
b. Both internal failure costs and external failure costs decreased substantially in 2006 as compared
to those in 2005. The firm experienced a 1.41 percent decrease in internal failure and a 4.34
percent decrease in external failure costs with the total savings of P345,000. The savings was
863 percent of the increases in prevention and appraisal costs.
Requirement 3
Among nonfinancial measures the firm may want to monitor are:

 The number of defects or the processes yield (ratio of good output to total output)
 The percentage of defective units shipped to customers to total units of products shipped
 The number of customer complaints
 Difference between delivery date requested by the customer
 On-time delivery percentage (total units shipped on or before the scheduled date to the total
units shipped)
 Surveys of customer satisfaction
It should be noted that nonfinancial measures by themselves often have limited meaning.
Nonfinancial measures are more informative when trends of the same measure over time are
examined.
PROBLEM 5:
CASE STUDY:
CS1:
DI NA MULI Industries manufactures electronic testing equipment. DI NA MULI also installs the
equipment at customer’s sites and ensures that it functions smoothly. Additional information on the
Manufacturing and installation departments is as follows (capacities are expressed in terms of the
number units of electronic testing equipment):
Equipment Manufactured Equipment Installed

Annual capacity 400units per year 300 units per year
Equipment manufactured and installed 300 units/year 300 units per year
DI NA MULI manufactures only 300 units per year because the installation Department has only enough
space to install 300 units. The equipment sells for P40,000 per unit (installed) and has direct materials
costs of P15,000. All costs other than direct materials costs are fixed.
REQUIREMENTS:
1. DI NA MULI is considering hot to motivate workers to improve their productivity(output
per hour). One proposal is to evaluate and compensate workers in the Manufacturing and
installation departments on the basis of their productivities. Is the new proposal a good idea?
2. DI NA MULI’s engineers have found a way to reduce equipment
manufacturing time. The new method would cost an additional P50 per unit and would
allow DI NA MULI to manufacture 20 additional units a year. Should DI NA MULI
implement the new method?
3. A new installation technique has been developed that will enable DI NA MULI’s engineers
to install 10 additional units of equipment a year. The new method will increase installation
costs by P50000 each year. Should DI NA MULI implement the new technique?
4. DI NA MULI’s designers have proposed a changed in direct
materials that would increase direct materials costs by P2000 per unit. This change would
enable DI NA MULI to install 320 units of equipment per year. If Columbia makes the
change, it will implement the new design on all equipment sold. Should DI NA MULI use
the new design?
1. Motivating installation workers to increase productivity is worthwhile because
installation is bottleneck operation, and any increase in productivity at the bottleneck
will increase throughput contribution. On the other hand, motivating workers in the
manufacturing department to increase productivity is not worthwhile. Manufacturing is
not a bottleneck operation, so any increase in output will result only in extra inventory of
equipment. Columbia Industries should encourage manufacturing to produce only as
much equipment as the installation department needs, not to produce as much as it can.
Under these circumstances, it would not be a good idea to evaluate and compensate
manufacturing workers on the basis of their productivity.
2. It will cost DI NA MULI P50 per unit to reduce manufacturing time. But manufacturing
time more equipment will not increase sales and throughput contribution. DI NA MULI
Industry should not implement the new manufacturing method.
3. Increase in throughput contribution, P25000*10units P250000
Increase in relevant cost P 50000

The additional throughput contribution exceeds incremental cost by P200000, so DI NA MULI
Industries should implement the new installation technique.
4. Additional relevant costs of new direct materials P640,000
(P2000*320 units)
Increase in throughput contributions P25,000*20 units P500,000
The additional incremental cost exceed the benefit from higher throughput contribution
by P140000, s DI NA MULI Industry should not implement the new design.
Alternatively, compare throughput contribution under each alternative.

Current throughput contribution is P25000*300 P7,500,000
With modification, throughput contribution is P23000*320 P7,360,000
The current throughput contribution is greater than the throughput contribution resulting
from the proposed change in direct materials. Hence, DI NA MULI Industries should
not implement the new design
CS2:
REFERENCES:
 https://www.coursehero.com/search/results/193629894/e4517111e1932b3432/
 Management Advisory Services CPA Reviewer by Cabrera
 Management Advisory Services CPA Reviewer by Agamata
 Management Advisory Services CPA Reviewer by Roque
 Management Advisory Services CPA Reviewer by Bobadilla
 www.scribd.com
 www.quizlet.com


26managing Accounting in A Changing Environment

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

26managing Accounting in A Changing Environment

Uploaded by

Copyright:

Available Formats

CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT

1. What roles do management accountants play in TQM?

2. How can management accountants meet the challenges of TQM?

3. Describe JIT purchasing and its benefit.

4. What are the core principles of total quality management?

5. Why is continuous quality improvement essential to achieve TQM and critical to an

6. What is cost of conformance?

7. What is cost of Nonconformance?

10. What is TQM?

12. Describe the 3 main measures used in the theory of accounts.

13. Describe the four key steps in managing bottleneck operations.

14. What are the purposes of conducting a quality audit?

15. What is gap analysis?

16. Describe the processes for an effective implementation of TQM.

e. Develop strategic quality improvement plans

17. What are the main features in a JIT production system?

20. What is reengineering?

MULTIPE CHOICE: THEORIES

1.Which of the following statements about managerial accountants is false?

resolve operating problems.

7. Which of the following is not an objective of managerial accounting?

8. The role of managerial accounting information in assisting management is a(n):

12. Which of the following perspectives is normally absent in a balanced scorecard?

13. Managerial accounting:

14. Managerial accounting:

18. Financial accounting focuses primarily on reporting:

23. The chief managerial and financial accountant of an organization is the:

25. A controller is normally involved with:

26. Which of the following is not a function of the treasurer?

27. Managerial accountants:

28. The two dimensions of managerial accounting are:

29. Much of managerial accounting information is based on:

30. Which of the following is not normally considered to be an element of e-business?

31. Managerial accounting has changed in recent years because of:

32. Managerial accounting has changed in recent years because of:

I. The emphasis of JIT is on "pull" manufacturing.

35. Cost management systems tend to focus on an organization's:

D. Distributing goods from regional warehouses to local stores.

39. The activities performed by a manufacturing organization could be categorized as pre-

46. Which of the following is not an ethical standard of managerial accounting?

47. Which of the following is not an element of competency?

49. The major users of accounting information are

50. Good accounting information helps an organization by:

b. determining who should be fired and when.

53. Which of the following is NOT and example of a special report?

54. The process of setting goals is called:

56. In the value-chain, accounting is in the _____ function:

58. The treasurer function includes:

63. Managerial accounting places considerable weight on:

64. The plans of management are often expressed formally in:

66. A staff position:

Manager of a Data Processing Manager of a Production

69. A _______________ position in an organization is directly related to the achievement of the

70. ______________ is an example of a line position.

79. The controller of a company or other organization is

80. Which item is NOT an IMA Standard for Ethical Conduct?

81. Which statement about the degree of detail in a report is true?

82. Managerial accounting is similar to financial accounting in that

83. Managerial accounting differs from financial accounting in that it is

85. Which activity is NOT normally performed by managerial accountants?

86. Conventional and just-in-time manufacturers both

d. Require about the same amount of space to operate.