52) Following a strategy of product differentiation, Sting Corporation makes a high-end computer
monitor, CM7. Sting Corporation presents the following data for the years 2012 and 2013:
2012 2013
Units of CM7 produced and sold 5,000 5,500
Selling price $400 $440
Direct materials (pounds) 15,000 15,375
Direct materials costs per pound $40 $44
Manufacturing capacity for CM12 (units) 10,000 10,000
Conversion costs $1,000,000 $1,100,000
Conversion costs per unit of capacity $100 $110
Selling and customer-service capacity (customers) 60 58
Total selling and customer-service costs $360,000 $362,500
Selling and customer-service capacity cost per customer $6,000 $6,250
Sting Corporation produces no defective units but it wants to reduce direct materials usage per unit of
CM7 in 2012. Manufacturing conversion costs in each year depend on production capacity defined in
terms of CM7 units that can be produced. Selling and customer-service costs depend on the number of
customers that the customer and service functions are designed to support. Ernsting Corporation has 100
customers in 2012 and 115 customers in 2013. The industry market size for high-end computer monitors
increased 5% from 2012 to 2013.
Required:
a. What is the revenue effect of the price-recovery component?
b. What is the cost effect of the price-recovery component?
c. What is the net effect on operating income as a result of the price-recovery component?
d. What is the net effect on operating income as a result of the productivity component?
53) A company pursuing cost leadership may try to further analyze the change in operating income even
when the growth component is highly favorable. Why?
Objective 12.5
1) Engineered costs ________.
A) have a no repetitive relationship with output
B) have no measurable cause-and-effect relationship between output and resources used
C) include research and development and human resource costs
D) include a high level of certainty
2) Which of the following statements is of true engineered costs?
A) They arise from periodic (usually annual) decisions regarding the maximum amount to be incurred.
B) They have a detailed, physically observable, and repetitive relationship with output.
C) They include advertising, executive training, and R&D.
D) They have high level of uncertainty.
3) Which of the following statements is true of discretionary costs?
A) They arise from day-to-day operational decisions.
B) They include conversion cost, direct material costs.
C) They have measurable cause-and-effect relationship between output and resources used.
D) They have high level of uncertainty.
4) ________ have no measurable cause-and-effect relationship between output and resources used.
A) Engineered costs
B) Discretionary costs
C) Marginal costs
D) Manufacturing costs
5) Executive training costs is an example of ________.
A) engineered costs
B) discretionary costs
C) downsizing costs
D) rightsizing costs
6) Engineered costs ________.
A) possess a high level of uncertainty
B) are nonrepetitive
C) are from physically observable activities
D) have processes that are sketchy or unavailable
7) Conversion costs are an example of ________.
A) direct engineered costs
B) indirect engineered costs
C) discretionary costs
D) unused capacity costs
8) Managers can reduce capacity-based fixed costs by measuring and managing ________.
A) unused capacity
B) variable costs
C) engineered costs
D) discretionary costs
9) It is difficult to determine unused capacity for ________.
A) direct engineered costs
B) discretionary costs
C) variable costs
D) marginal costs
Answer the following questions using the information below:
Argon Corp. had capacity to produce 15,000 units of L3 using 30,000 kg of direct materials. Argon
produced 14,750 units of L3 by processing 27,500 kg of direct materials. Conversion cost per unit is $7.50.
Argon can add or reduce manufacturing capacity in increments of 2,500 kgs.
10) What is the cost of unused capacity for conversion costs of Argon?
A) $3,750
B) $7,500
C) $9,375
D) $1,875
11) What would be the cost savings if Argon decides to reduce manufacturing capacity by 2,500 kgs?
A) $9,375
B) $3,750
C) $1,875
D) $7,500
12) Which of the following statements is a valid argument for Argon to reduce its manufacturing
capacity?
A) Argon’s strategy is to grow its business as L3 have unlimited demand.
B) Argon can call back the expelled employees if the reduced capacity level proves to be insufficient.
C) Argon already has a high employee turnover rate and a few more will make no difference.
D) Argon wants to reduce product costs as they want to be the cost leaders.
13) Direct material cost is an example of ________.
A) conversion costs
B) discretionary costs
C) engineered costs
D) downsized costs
14) Downsized capacity is the amount of productive capacity available over and above the productive
capacity employed to meet customer demand in the current period.
15) Discretionary costs arise from periodic (usually annual) decisions regarding the maximum amount to
be incurred.
16) Discretionary costs are not easily controllable compared to engineered costs.
17) Engineered costs contain a higher level of uncertainty than discretionary costs.
18) Engineered costs result from a cause-and-effect relationship between the cost driver output and the
resources used to produce that output.
19) Advertising cost is an example of a discretionary cost.
20) It is relatively easy to identify unused capacity for discretionary costs.
21) Downsizing is an integrated approach of configuring processes, products, and people to match costs
to the activities that need to be performed to operate effectively and efficiently in the present and future.
22) Manufacturing overhead cost is an example of indirect engineered costs.
23) Downsizing never involves eliminating jobs as it adversely affects employee morale.
24) Define engineered and discretionary costs and give two examples of each.
25) Can a company identify unused capacity and, if so, how can unused capacity be managed?
Objective 12.A
1) The lower the inputs for a given set of outputs or the higher the outputs for a given set of inputs, the
higher the level of ________.
A) overallocation
B) expenditure
C) productivity
D) labor costs
2) Yield variances ________.
A) reveal the effect of substitution within a single factor of production
B) address the productivity of a single component of one factor of production
C) capture both substitutions between factors of production as well as within factors of production
D) reveal the effect of substitution within multiple factors of production
3) Partial productivity multiplied by the quantity of input used results in ________.
A) expected production
B) budgeted output
C) actual output
D) a ratio
4) ________ measures the relationship between actual inputs used and actual outputs achieved.
A) Strategy map
B) Planning variance
C) Productivity
D) Discretionary costs
5) Which of the following is the correct mathematical expression to calculate partial productivity?
A) Sales value of output produced ÷ Quantity of all inputs used
B) Quantity of output produced ÷ Quantity of input used
C) Quantity of output produced ÷ Costs of all inputs used
D) Sales value of output produced ÷ Cost of inputs required to produce current year production in
previous year
6) Boron Company provided the following information:
Budgeted input 82,000 gallons
Actual input 82,800 gallons
Budgeted production 80,000 units
Actual production 81,500 units
What is the partial productivity ratio?
A) 1.01 units per gallon
B) 1.02 units per gallon
C) 0.98 units per gallon
D) 0.97 units per gallon
7) Bromint Company provided the following information:
Budgeted input 89,500 gallons
Actual input 87,700 gallons
Budgeted production 42,000 units
Actual production 43,000 units
What is the partial productivity ratio?
A) 2.13 units per gallon
B) 0.47 units per gallon
C) 0.49 units per gallon
D) 2.03 units per gallon
8) Mintol Company provided the following information:
Budgeted input 72,000 gallons
Actual input 90,000 gallons
Budgeted production 30,000 units
Actual production 28,500 units
What is the partial productivity ratio?
A) 0.32 units per pound
B) 0.37 units per pound
C) 0.41 units per pound
D) 0.39 units per pound
9) Which of the following statements is true of productivity?
A) Partial productivity compares the quantity of output produced with the cost of all inputs used.
B) Productivity will increase when the partial productivity is high.
C) Prices of inputs are incorporated in the partial productivity ratio.
D) Partial productivity compares the quantity of output produced with the quantity of all inputs used.
10) Answer the following questions using the information below:
Nicolt Company produced 120,000 sport jackets during 2015 and 480,000 direct manufacturing labor-
hours were used at $2 per hour. The conversion costs were $1.2 per jackets produced.
What is the direct manufacturing labor partial productivity for Nicolt Company?
A) 0.25 unit per direct manufacturing labor-hour
B) 0.50 unit per direct manufacturing labor-hour
C) 4.00 unit per direct manufacturing labor-hour
D) 1.00 unit per direct manufacturing labor-hour
11) What is the total factor productivity for Nicolt Company?
A) 0.109 units of output per dollar
B) 0.250 units of output per dollar
C) 0.835 units of output per dollar
D) 1.667 units of output per dollar
12) Which of the following statements is true of productivity factors?
A) Partial-productivity focus on a multiple inputs simultaneously.
B) Total factor productivity (TFP) focus on a single input.
C) It is the ratio of the quantity of output produced to the costs of all inputs used based on current prices.
D) Comparable data for total factor productivity measurements are easily available.
13) Total factor productivity will increase if ________.
A) technical productivity occurs
B) the company uses more total inputs per output
C) the company incurs fewer costs per input
D) current technology becomes obsolete
14) Which of the following is the correct mathematical expression to calculate total factor productivity?
A) Sales value of output produced ÷ Quantity of all inputs used
B) Quantity of output produced ÷ Quantity of the input used
C) Quantity of output produced ÷ Costs of all inputs used
D) Sales value of output produced ÷ Cost of inputs required to produce current year production in
previous year
15) Which of the following is the correct mathematical expression to calculate a benchmark total factor
productivity?
A) Quantity of output produced in current year ÷ Costs of inputs at current year prices that would have
been used in previous year to produce current year output
B) Quantity of output produced in previous year ÷ Costs of inputs at current year prices that would have
been used in previous year to produce current year output
C) Quantity of output produced in current year ÷ Costs of inputs at previous year prices that would have
been used in previous year to produce current year output
D) Quantity of output produced in previous year ÷ Costs of inputs at previous year prices that would
have been used in previous year to produce current year output
16) The partial productivity of overhead resources can be measured by considering the cost driver as
________.
A) budgeted input
B) the denominator
C) the fixed input
D) the numerator
17) Which of the following statements is true of productivity measures?
A) Partial productivity and total factor productivity measures never work best together.
B) Partial productivity explicitly considers gains from using fewer physical inputs as well as substitution
among inputs.
C) All productivity measures are physical measures lacking financial content.
D) Total factor productivity considers the trade-offs across various inputs based on current input prices.
18) ________ is an example of a total factor productivity measure.
A) The number of units produced per month
B) The number of units produced per machine hour
C) The number of units produced per labor hour
D) The number of units produced per dollar of input cost
19) Total factor productivity explicitly considers gains from using fewer physical inputs as well as
substitution among inputs.
20) Partial productivity and total factor productivity measures work best together because both measures
have the same kind of strengths and weaknesses.
21) One problem with total factor productivity revolves around the measurement of combined
productivity of all inputs.
22) Productivity describes the relationship between different quantities of inputs consumed and the
quantities of output produced.
23) Power Company has been unhappy with the financial accounting variances that its cost accounting
system has been producing, because its managers believe that there is more to evaluating an operation
than just examining accounting numbers. Therefore, it has started gathering data to assist in the
examination of nonfinancial results of operations. The following information relates to the manufacture
of remote control units for televisions, radios, and stereo components:
2011 2012
Remote control units produced and sold 80,000 100,000
Direct manufacture labor-hours 12,000 13,200
Direct materials used (sets) 80,600 100,500
Direct manufacture cost per hour $18 $20
Direct materials cost per set $31 $32
Required:
a. What is the partial productivity of direct materials for each year?
b. What is the partial productivity of direct manufacturing labor for each year?
c. Did each area improve between 2011 and 2012? Explain.
d. What will be the projected direct material and labor needs for 2013 if remote control units increase by
12,000 units, assuming Power Company applies the constant returns to scale technology?
24) Grader Company manufactures road graders. Because its managers all have engineering
backgrounds, they prefer nonfinancial information for their decision-making models. Therefore, they
require the accountants gather data to assist in the examination of nonfinancial results of operations. The
following information relates to the manufacture of a paver:
2011 2012
Units produced and sold 6,800 5,600
Direct manufacture labor-hours 136,000 115,200
Direct materials used (tons) 29,000 24,400
Direct manufacture cost per hour $21 $22
Direct materials cost per ton $431 $443
Required:
a. What is the partial productivity for direct materials for each year?
b. What is the partial productivity for direct manufacturing labor for each year?
c. What is the total factor productivity for each year?
25) Fairytale Weddings manufactures wedding dresses. The following information relates to the
manufacture of gowns in its Perth plant:
20X1 20X2
Units produced and sold 43,000 52,600
Direct manufacture labor-hours 22,000 26,000
Direct materials used (square yards) 130,000 152,000
Direct manufacture cost per hour $16 $17
Direct materials cost per yard $10 $11
Required:
Prepare an analysis of change in annual costs from 20X1 to 20X2 including direct materials, direct
manufacturing labor, and total inputs.
26) Ralph Company has been very aggressive in developing various types of financial and nonfinancial
measurement schemes to help with the evaluation of its manufacturing processes. It appears that some of
the managers are suboptimizing in that their decision processes are geared solely for their department’s
benefit, sometimes to the detriment of the organization as a whole.
Required:
What changes in the evaluation system could the company implement to help minimize the
suboptimization of the managers’ decision-making process?
27) Total factor productivity (TFP) is easy to compute for a single-product company. When dealing with a
multiproduct company, one of two adjustments must be made. What are these potential adjustments?