Chapter 5
75. Workshape Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors. The JIT
distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types
of distributors purchase the same product. The customer activities and costs for the previous quarter are as follows:
Activity JIT distributors Non-JIT distributors
Sales Orders 500 30
Sales Calls 30 30
Service Calls 200 90
Average Order Size 90 1,400
Manufacturing Cost/Unit $50 $50
Customer Costs:
Processing Sales Orders $160,000
Selling Goods $155,000
Servicing Goods $195,000
Total $500,000
Calculate the activity rate for selling goods. (Note: Round answer to two decimal places.)
a. $2,583.33 per sales call
b. $3,550.66 per sales call
c. $2,200.50 per sales call
d. $4,800.40 per sales call
e. $9,400.60 per sales call
Chapter 5
76. Workshape Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors. The JIT
distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types
of distributors purchase the same product. The customer activities and costs for the previous quarter are as follows:
Activity JIT distributors Non-JIT distributors
Sales Orders 500 30
Sales Calls 30 30
Service Calls 200 90
Average Order Size 90 1,400
Manufacturing Cost/Unit $50 $50
Customer Costs:
Processing Sales Orders $160,000
Selling Goods $155,000
Servicing Goods $195,000
Total $500,000
Calculate the activity rate for servicing goods. (Note: Round answer to two decimal places.)
a. $1,089.25 per service call
b. $750.10 per service call
c. $680.50 per service call
d. $1,000.54 per service call
e. $672.41 per service call
Chapter 5
77. Workshape Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors. The JIT
distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types
of distributors purchase the same product. The customer activities and costs for the previous quarter are as follows:
Activity JIT distributors Non-JIT distributors
Sales Orders 500 30
Sales Calls 30 30
Service Calls 200 90
Average Order Size 90 1,400
Manufacturing Cost/Unit $50 $50
Customer Costs:
Processing Sales Orders $160,000
Selling Goods $155,000
Servicing Goods $195,000
Total $500,000
Calculate the total customer cost for the JIT distributors. (Note: Round the activity rates and activity costs to the nearest
dollar.)
a. $487,560
b. $362,890
c. $612,370
d. $250,020
e. $448,730
Chapter 5
78. Workshape Manufacturing has two classes of distributors: JIT distributors and non-JIT distributors. The JIT
distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types
of distributors purchase the same product. The customer activities and costs for the previous quarter are as follows:
Activity JIT distributors Non-JIT distributors
Sales Orders 500 30
Sales Calls 30 30
Service Calls 200 90
Average Order Size 90 1,400
Manufacturing Cost/Unit $50 $50
Customer Costs:
Processing Sales Orders $160,000
Selling Goods $155,000
Servicing Goods $195,000
Total $500,000
Calculate the total customer cost for the non-JIT distributors. (Note: Round the activity rates and activity costs to the
nearest dollar.)
a. $150,025
b. $122,500
c. $175,200
d. $147,030
e. $178,791
Chapter 5
79. Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for one electronic
component, which is purchased from two local suppliers: Hydra International and Parable Company. Both suppliers are
reliable and rarely deliver late. Hydra sells the component for $12.00 per unit, while Parable sells the same component for
$10.00. Fame purchases 80% of its components from Parable because of the lower price it offers. The total annual
demand is 95,000 units.
I. Activity Data
Activity Cost
Inspecting components (sampling only) $ 210,000
Reworking products (due to failed component) $2,454,000
Warranty work (due to failed component) $1,923,000
II. Supplier Data
Hydra Parable
International Company
Unit purchase price $12.00 $10.00
Units purchased 19,000 76,000
Sampling hours 60 2,600
Rework hours 150 3,800
Warranty hours 550 7,000
Calculate the activity rate for inspecting components based on sampling hours. (Note: Round answer to the nearest dollar.)
a. $75 per hour
b. $72 per hour
c. $77 per hour
d. $80 per hour
e. $79 per hour
Chapter 5
80. Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for one electronic
component, which is purchased from two local suppliers: Hydra International and Parable Company. Both suppliers are
reliable and rarely deliver late. Hydra sells the component for $12.00 per unit, while Parable sells the same component for
$10.00. Fame purchases 80% of its components from Parable because of the lower price it offers. The total annual
demand is 95,000 units.
I. Activity Data
Activity Cost
Inspecting components (sampling only) $ 210,000
Reworking products (due to failed component) $2,454,000
Warranty work (due to failed component) $1,923,000
II. Supplier Data
Hydra Parable
International Company
Unit purchase price $12.00 $10.00
Units purchased 19,000 76,000
Sampling hours 60 2,600
Rework hours 150 3,800
Warranty hours 550 7,000
Calculate the activity rate for reworking products based on rework hours. (Note: Round answer to the nearest dollar.)
a. $621 per hour
b. $595 per hour
c. $602 per hour
d. $605 per hour
e. $622 per hour
Chapter 5
81. Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for one electronic
component, which is purchased from two local suppliers: Hydra International and Parable Company. Both suppliers are
reliable and rarely deliver late. Hydra sells the component for $12.00 per unit, while Parable sells the same component for
$10.00. Fame purchases 80% of its components from Parable because of the lower price it offers. The total annual
demand is 95,000 units.
I. Activity Data
Activity Cost
Inspecting components (sampling only) $ 210,000
Reworking products (due to failed component) $2,454,000
Warranty work (due to failed component) $1,923,000
II. Supplier Data
Hydra Parable
International Company
Unit purchase price $12.00 $10.00
Units purchased 19,000 76,000
Sampling hours 60 2,600
Rework hours 150 3,800
Warranty hours 550 7,000
Calculate the activity rate for warranty work based on warranty hours. (Note: Round answer to the nearest dollar.)
a. $268 per hour
b. $255 per hour
c. $264 per hour
d. $262 per hour
e. $287 per hour
Chapter 5
82. Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for one
electronic component, which is purchased from two local suppliers: Hydra International and Parable
Company. Both suppliers are reliable and rarely deliver late. Hydra sells the component for $12.00 per unit,
while Parable sells the same component for $10.00 per unit. Fame purchases 80% of its components
from Parable because of the lower price it offers. The total annual demand is 95,000 units.
I. Activity Data
Activity Cost
Inspecting components (sampling only) $ 210,000
Reworking products (due to failed component) $2,454,000
Warranty work (due to failed component) $1,923,000
II. Supplier Data
Hydra Parable
International Company
Unit purchase price $12.00 $10.00
Units purchased 19,000 76,000
Sampling hours 60 2,600
Rework hours 150 3,800
Warranty hours 550 7,000
Calculate the total activity cost per component associated with using Hydra International as the supplier.
(Note: Round the activity rates to the nearest dollar and the cost per component to two decimal places.)
a. $15.75
b. $10.00
c. $24.53
d. $20.00
e. $22.80
Chapter 5
83. Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for one electronic
component, which is purchased from two local suppliers: Hydra International and Parable Company. Both suppliers are
reliable and rarely deliver late. Hydra sells the component for $12.00 per unit, while Parable sells the same component for
$10.00. Fame purchases 80% of its components from Parable because of the lower price it offers. The total annual
demand is 95,000 units.
I. Activity Data
Activity Cost
Inspecting components (sampling only) $ 210,000
Reworking products (due to failed component) $2,454,000
Warranty work (due to failed component) $1,923,000
II. Supplier Data
Hydra Parable
International Company
Unit purchase price $12.00 $10.00
Units purchased 19,000 76,000
Sampling hours 60 2,600
Rework hours 150 3,800
Warranty hours 550 7,000
Calculate the total cost per component associated with using Parable Company as the supplier. (Note: Round the activity
rates to the nearest dollar and the cost per component to two decimal places.)
a. $12.45
b. $78.92
c. $67.24
d. $15.74
e. $86.28
Chapter 5
84. Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for one electronic
component, which is purchased from two local suppliers: Hydra International and Parable Company. Both suppliers are
reliable and rarely deliver late. Hydra sells the component for $12.00 per unit, while Parable sells the same component for
$10.00. Fame purchases 80% of its components from Parable because of the lower price it offers. The total annual
demand is 95,000 units.
I. Activity Data
Activity Cost
Inspecting components (sampling only) $ 210,000
Reworking products (due to failed component) $2,454,000
Warranty work (due to failed component) $1,923,000
II. Supplier Data
Hydra Parable
International Company
Unit purchase price $12.00 $10.00
Units purchased 19,000 76,000
Sampling hours 60 2,600
Rework hours 150 3,800
Warranty hours 550 7,000
Chapter 5
Suppose that Fame loses $3,500,000 in sales per year because of its reputation for defective units attributable to failed
components. Using warranty hours, assign the proportional cost of lost sales to Hydra International. What is the increase
in the cost per component? (Note: Round the lost sales per warranty hour and the cost of the component to two decimal
places.)
a. $4.65 per unit
b. $25.72 per unit
c. $8.95 per unit
d. $13.42 per unit
85. Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for one electronic
component, which is purchased from two local suppliers: Hydra International and Parable Company. Both suppliers are
reliable and rarely deliver late. Hydra sells the component for $12.00 per unit, while Parable sells the same component for
$10.00. Fame purchases 80% of its components from Parable because of the lower price it offers. The total annual
demand is 95,000 units.
I. Activity Data
Activity Cost
Inspecting components (sampling only) $ 210,000
Reworking products (due to failed component) $2,454,000
Warranty work (due to failed component) $1,923,000
II. Supplier Data
Hydra Parable
International Company
Unit purchase price $12.00 $10.00
Units purchased 19,000 76,000
Sampling hours 60 2,600
Chapter 5
Rework hours 150 3,800
Warranty hours 550 7,000
Suppose that Fame loses $3,500,000 in sales per year because of its reputation for defective units attributable to failed
components. Using warranty hours, assign the proportional cost of lost sales to Parable Company. What is the increase in
the cost per component? (Note: Round the lost sales per warranty hour and the cost of the component to two decimal
places.)
a. $20.12 per unit
b. $11.34 per unit
c. $55.45 per unit
d. $42.70 per unit
86. All of the following are supplier-driven activities except
a. receiving.
b. purchasing.
c. efficiency.
d. inspection of incoming components.
Chapter 5
87. ____ is the length of time required to produce one product; ____ is the number of units that can be produced in a given
period of time.
a. Cycle time; velocity
b. Velocity; cycle time
c. Activity time; cycle production
d. Cycle time; activity output
e. Velocity; cycle production
88. The identification and elimination of activities that fail to add value refers to
a. external failures.
b. activity reduction.
c. internal failures.
d. activity elimination.
Chapter 5
89. The process of choosing among different sets of activities caused by competing strategies refers to
a. activity drivers.
b. activity inputs.
c. activity outputs.
d. activity selection.
90. The process of decreasing the time and resources required by an activity is known as
a. activity reduction.
b. activity output measure.
c. activity attributes.
d. activity analysis.
Chapter 5
91. Increasing the efficiency of necessary activities by using economies of scale is known as
a. activity inputs.
b. activity sharing.
c. control activities.
d. cycle time.
92. ____ is concerned with identifying the root causes of activity costs.
a. Direct analysis
b. Activity analysis
c. Driver analysis
d. Causal analysis
e. None of these.
Chapter 5
93. Which of the following is not one of the three conditions necessary to be classified as a discretionary activity?
a. the activity produces a change of state
b. the change of state was not achievable by preceding activities
c. the activity enables other activities to be performed
d. the activity increases efficiency
94. ____ activities are unnecessary activities.
a. Frivolous
b. Nonvalue-added
c. Expensive
d. Under-performing
e. None of these.
Chapter 5
95. Activity-based management attempts to
a. identify and eliminate all unnecessary activities.
b. increase the efficiency of necessary activities.
c. add new activities that increase value.
d. do all of these.
96. Which is not a component of process value analysis?
a. driver analysis
b. velocity
c. activity analysis
d. performance measurement
e. None of these.
Chapter 5
97. Complying with the filing requirements of the IRS is an example of a
a. recreational activity.
b. discretionary activity.
c. recommended activity.
d. required activity.
98. Which of the following is not an example of a nonvalue-added activity?
a. Storing
b. Reporting defects
c. Handling customer complaints
d. Waiting
e. Supervising production workers
Chapter 5
99. ____ focuses on the relationship of activity inputs to activity outputs.
a. Activity output measure
b. Efficiency
c. Velocity
d. Activity drivers
e. None of these.
100. ____ is concerned with doing the activity right the first time it is performed.
a. Time
b. Efficiency
c. Quality
d. Velocity
e. None of these.
Chapter 5
101. Assume that a company takes 4,500 hours to produce 15,000 units of a product. What is the cycle time for the
company? (Note: Round answer to two decimal places.)
a. 0.45 hours per unit
b. 1.50 hours per unit
c. 0.50 hours per unit
d. 3.50 hours per unit
e. 0.30 hours per unit
102. Assume that a company takes 10,000 hours to produce 50,000 units of a product. What is the velocity for the
company?
a. 1 unit per hour
b. 3.5 units per hour
c. 2 units per hour
d. 5 units per hour
e. 2.5 units per hour