Accounting Information Systems, 8e—Test Bank, Chapter 7
Chapter 7—The Conversion Cycle
TRUE/FALSE
1. The philosophy of customer satisfaction permeates the world-class firm.
2. Reports generated by the cost accounting system include performance reports and budget
reports.
3. The cost accounting system authorizes the release of raw materials into production.
4. Batch processing creates a homogeneous product through a continuous series of standard
procedures.
5. The bill of materials specifies the types and quantities of the raw materials and subassemblies
used in producing a single unit of finished product.
6. A purchase requisition authorizes the storekeeper to release materials to individuals or work
centers in the production process.
7. Cement and petrochemicals are produced by the batch manufacturing method.
8. The objective of the Economic Order Quantity model is to reduce total inventory costs by
minimizing carrying costs and ordering costs.
9. The work-in-process file is the subsidiary ledger for the work-in-process control account.
10. Move tickets authorize the storekeeper to release materials to work centers.
11. Typically the only allocated cost in the value stream is a charge per square foot for the value
stream production facility.
12. Computer Integrated Manufacturing focuses on reducing the complexity of the physical
manufacturing layout of the shop floor.
13. The only objective of the Just-In-Time philosophy is to reduce inventory levels.
14. Accounting in a world-class manufacturing environment emphasizes standard cost and
variance analysis.
15. ABC assigns cost to cost objects based on their use of activities.
16. The complexities of ABC have caused many firms to abandon this method in favor of a
simpler accounting model called value stream accounting.
17. A company’s value stream includes all steps in a process, both essential and non-essential, for
which the customer is willing to pay.
18. Lean manufacturing evolved from the Toyota Production System (TPS), which is based on the
just-in-time (JIT) production model.
19. The two subsystems of a traditional conversion cycle are the production system and the
delivery system.
20. Manufacturing resources planning (MRP II) has evolved into enterprise resource planning
(ERP).
21. Pull processing involves pulling products from the consumer end (demand), rather than
pushing them from the production end (supply).
22. The inventory control function updates and maintains both raw materials and finished goods
inventory subsidiary ledgers.
23. An excess materials requisition is a control that signals that a greater than standard quantity of
materials is being ordered from the vendor.
24. Cost accounting initiates a WIP account upon receiving the first move ticket of a batch.
25. A company’s value stream map depicts only the value added activities needed to complete a
process or product.
MULTIPLE CHOICE
1. Which statement is true?
a.
World-class companies must maintain strategic agility and be able to turn on a
dime.
b.
World-class companies motivate and treat employees like appreciating assets.
c.
Manufacturing firms that achieve world-class status do so by following a
philosophy of lean manufacturing
d.
All the above are true
2. Which function is not a part of the batch production process?
a.
Plan and control production
b.
Prepare purchase orders
c.
Maintain inventory control
d.
Perform cost accounting
3. The purpose of the cost accounting system is to
a.
produce information for inventory valuation
b.
authorize release of raw materials
c.
direct the movement of work-in-process
d.
determine material requirements
4. Which process creates a homogeneous product through a continuous series of standard
procedures?
a.
batch process
b.
make-to-order process
c.
continuous process
d.
none of the above
5. An example of a continuous process is the production of
a.
wedding invitations
b.
milk products
c.
jet aircraft
d.
all of the above
6. All of the following are characteristics of batch processing except
a.
each item in the batch is similar
b.
batches are produced in accordance with detailed customer specifications
c.
batches are produced to replenish depleted inventory levels
d.
setting up and retooling is required for different batches
7. When one of the following statements is true?
Accounting Information Systems, 8e—Test Bank, Chapter 7
a.
ERP evolved directly from MRP.
b.
ERP evolved into MRP and MRP evolved into MRP II
c.
MRP II evolved from MRP and MRP II evolved into ERP
d.
None of the above is true.
8. The production schedule is
a.
the expected demand for the firm’s finished goods for a given year
b.
the formal plan and authority to begin production
c.
a description of the type and quantity of raw materials and subassemblies used to
produce a single unit of finished product
d.
the sequence of operations during manufacturing
9. A move ticket
a.
is the formal plan and authority to begin production
b.
specifies the materials and production required for each batch
c.
records the work done in each work center
d.
authorizes the storekeeper to release materials to work centers
10. The internal control significance of the excess materials requisition is that it
a.
indicates the amount of material released to work centers
b.
identifies materials used in production that exceed the standard amount allowed
c.
indicates the standard quantities required for production
d.
documents the return to raw materials inventory of unused production materials
11. Inventory control performs all of the following tasks except it
a.
provides production planning and control with the inventory status report of
finished goods
b.
updates the raw material inventory records
c.
prepares a materials requisition for each production batch
d.
records the completed production as an increase to finished goods inventory
12. The storekeeper releases raw materials based on the
a.
production schedule
b.
materials requisition
c.
work order
d.
bill of materials
13. Which of the following is not an assumption of the Economic Order Quantity model?
a.
demand for the product is known with certainty
b.
total cost per year of placing orders is fixed
c.
lead time is known and is constant
d.
there are no quantity discounts
14. Firms hold safety stock to compensate for
a.
mathematical weaknesses of the Economic Order Quantity model
b.
variations in lead time or daily demand
c.
fluctuations in carrying costs
d.
uncertainty in the estimation of ordering costs
15. What is the economic order quantity if the annual demand is 10,000 units, set up cost of
placing each order is $3 and the holding cost per unit per year is $2?
a.
174
b.
123
c.
245
d.
none of the above
16. If the daily demand is 40 units and the lead time is 12 days, the reorder point is
a.
52 units
b.
48 units
c.
480 units
d.
none of the above
17. Which statement is not correct?
Accounting Information Systems, 8e—Test Bank, Chapter 7
a.
general ledger creates a new cost record upon receipt of a work order from
production planning and control
b.
cost accounting updates the cost record with data gathered from the materials
requisition
c.
general ledger posts summary information about the manufacturing process based
on a journal voucher prepared by cost accounting
d.
cost accounting computes variances and applies overhead to individual cost
records
18. Which of the following is not a problem associated with standard cost accounting?
a.
Standard costing motivates management to produce large batches of products and
build inventory.
b.
Applying standard costing leads to product cost distortions in a lean environment.
c.
Standard cost data are associated with excessive time lags that reduce its
usefulness.
d.
The financial orientation of standard costing may promote bad decisions.
e.
All of the above are problems with standard costing.
19. Computer integrated manufacturing includes all of the following technologies except
a.
robotics
b.
materials requirements planning
c.
automated storage and retrieval systems
d.
computer aided design
20. Which of the following would not be included as a value stream cost?
a.
Labor costs of employees who simply transport the product from cell to cell.
b.
Labor costs of employees who design the product.
c.
A charge per square foot for the value stream production facility including cost of
rent and building maintenance.
d.
All of the above are value stream costs
21. Which situation violates the segregation of functions control procedure?
a.
production planning and control is located apart from the work centers
b.
inventory control maintains custody of inventory items
c.
cost accounting has custody of and makes entries on cost records
d.
work centers record direct labor on job tickets
22. All of the following are internal control procedures that should be in place in the conversion
cycle except
a.
calculation and analysis of direct material and direct labor variances
b.
retention of excess materials by work centers
c.
physical count of inventory items on hand
d.
limited access to raw material and finished goods inventories
23. Process simplification focuses on
a.
using Computer Numerical Controlled machines which stand alone within a
traditional setting
b.
completely automating the manufacturing environment
c.
reducing the complexity of the physical manufacturing layout of the shop floor
d.
organizing the process into functional departments
24. A manufacturing process that is organized into group technology cells utilizing no human
labor is called
a.
islands of technology
b.
process simplification
c.
computer integrated manufacturing
d.
traditional manufacturing
25. An example of automation of manufacturing design is
a.
Computer Aided Engineering
b.
Automated Storage and Retrieval Systems
c.
Computer Numerical Control
d.
robotics
26. An example of automation of manufacturing planning is
a.
Computer Aided Engineering
b.
Automated Storage and Retrieval Systems
c.
Materials Requirements Planning
d.
Computer Numerical Control
27. Which of the following is not true?
a.
The complexities of ABC have caused many firms to pursue value stream
accounting.
b.
Value stream accounting captures costs related to value added activities within a
specified department or activity.
c.
An essential aspect in implementing value stream accounting is defining the
product family.
d.
Value stream accounting makes no distinction between direct costs and indirect
costs.
28. Characteristics of lean manufacturing include all of the following except
a.
push manufacturing
b.
zero defects
c.
reduced setup time and small lot sizes
d.
reliable vendors
29. The cost of poor quality includes all of the following except
a.
cost of rework
b.
warranty claims
c.
scheduling delays
d.
proceeds from the sale of scrap
30. A flexible manufacturing system
a.
creates bottlenecks in the process
b.
leads to an “us” versus “them” attitude among workers
c.
shortens the physical distance between activities
d.
is organized along functional lines
31. Deficiencies of the traditional cost accounting information system include all of the following
except
a.
an emphasis on financial performance
b.
inaccurate cost allocations
c.
an emphasis on standard costs
d.
immediate feedback about deviations from the norm
32. Which statement is not correct?
a.
cost objects are the reasons for performing activities
b.
cost object describes the work performed in a firm
c.
activities cause costs
d.
cost objects create a demand for activities
33. Firms are abandoning Activity Based Costing (ABC) because
a.
it does not facilitates the analysis of variances
b.
it is complex and time consuming
c.
it does not recognize the importance of direct labor as a component of total
manufacturing cost
d.
the financial nature of the reports does not permit comparisons to be made among
different types of products
34. In traditional firms, information reporting
a.
provides financially oriented information relating to operations
b.
presents detailed information about activities
c.
shows the allocation of costs first to activities and then to cost objects
d.
identifies nonessential activities
35. Which of the following statements about the EOQ inventory model assumptions is incorrect?
a.
Demand for the product is constant and known with certainty.
b.
The lead time is a variable.
c.
All inventories in the order arrive at the same time.
d.
Total ordering cost is a variable
36. Which statement is not correct?
a.
Inventories provide a competitive advantage.
b.
Inventories can invite overproduction.
c.
Inventories are expensive to maintain.
d.
Inventories may conceal problems.
37. All of the following are documents in batch process production systems except
a.
production schedule
b.
route sheet
c.
materials requisition
d.
bill of manufacturing
38. Transaction authorization occurs in a traditional manufacturing environment in all of the
following ways except
a.
production planning and control initiates production with a work order
b.
movement of the work through the production process follows the move ticket
c.
the sales department modifies work orders to match changes in demand
d.
the materials requisition authorizes the storekeeper to release materials to the work
centers