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Chapter 19 Costing and the Value Chain Answer Key
True / False Questions
1.
The value chain includes customer service, marketing, and suppliers.
2.
International Financial Reporting Standards (IFRS) require companies to expense costs
associated with R&D activities.
3.
Non-value-added activities are those that add to a product's desirability.
4.
Activities related to internal failure such as rework, scrap, and engineering change orders
are value-added activities since they cannot be eliminated without increasing costs
elsewhere in the value chain.
5.
Non-value-added activities do not directly increase the worth of a product to a customer.
6.
Value-added activities add to a product's desirability from the manufacturer's perspective.
7.
The process of using activity-based costing to help reduce and eliminate non-value-added
activities is activity-based management.
8.
The development of activity-based cost information is a necessary prerequisite to activity-
based management.
9.
Activity-based costing systems refer to acquiring materials and manufacturing goods only
as needed to fill customers' orders.
10.
Activity-based management is a subset of activity-based costing.
11.
In the target costing process, target price is computed by adding the desired profit margin
to the target product cost.
12.
Target cost equals target price plus profit margin.
13.
The target costing process begins with finding a low cost supplier to reduce the overall
cost of production.
14.
To arrive at a target cost, the target selling price and a satisfactory profit margin are added
together.
15.
A primary objective of target costing is to reduce development time.
16.
A just-in-time manufacturing system is also known as a supply push system.
17.
Just-in-time inventory systems are characterized by extremely large inventories of
materials, work in process, and finished goods.
18.
In a just-in-time manufacturing system, reliable vendor relationships are essential only if
the prices they charge are the lowest possible prices.
19.
A just-in-time inventory system is dependent on reliability of equipment and production
workers are often trained in how to make routine repairs.
20.
Cycle time is the length of time required for a product to pass completely through a
manufacturing process.
21.
The basic approach of just-in-time inventory systems is to try to eliminate inefficiency and
to improve product quality.
22.
Rather than aiming to produce inventory, just-in-time inventory systems attempt to pull
production according to customer demand.
23.
Internal failure costs happen when an unsatisfactory good or service is delivered to a
customer.
24.
Total quality management centers on new product and service development as opposed to
managing the value chain for existing products.
25.
"Six Sigma" describes the length of time it takes a product to pass through the 6 stages of
manufacturing, from processing through inspection.
26.
A quality cost report would be comprised of prevention costs only.
27.
Activities that increase scrap and rework tend to increase productivity.
Multiple Choice Questions
28.
The suppliers and production component of the value chain would include all of the
following costs
except
:
29.
All of the following are components of the value chain
except
:
30.
Examples of value-added activities include all of the following
except
:
31.
Which of the following activities performed by a manufacturer of roller blades is a value-
added activity?
32.
Value-added activities include:
33.
Which of the following is a value-added activity by a manufacturer of chocolate candies?
34.
Which of the following is
not
one of the basic procedures related to activity-based costing?
35.
The primary objective of activity-based management is:
36.
Techniques to manage costs in the value chain include all of the following
except
:
37.
Target costing is directed toward:
38.
The identification of a target price for a newly designed product or service is focused on:
39.
The following are all characteristics of target costing
except
:
40.
Refer to the information above. If Summit Products requires a 25% return on sales to
undertake production, what is the target cost for the new widget?
41.
Refer to the information above. Summit has learned that a competitor plans to introduce a
similar widget at a price of $80. In response, Summit may reduce its selling price to $80. If
Summit requires a 25% return on sales, what is the target cost for the new widget?
42.
Refer to the information above. At a price of $80, Summit's market research indicates that
it can sell 60,000 units per year. Assuming Summit can reach its new target cost, how will
Summit's profit at the $80 price compare to what it would have earned in the absence of
the competitor's product?
43.
The just-in-time manufacturing system:
44.
Just-in-time manufacturing systems are also known as:
45.
The manufacturing efficiency ratio equals:
