Chapter 12—Activity-Based Management Key
1. Activity-based management focuses management’s attention on activities resulting in improving customer
value and profits.
2. Activity-based costing does not provide good information for activity-based management.
3. Activity-based costing is very concerned with waste issues.
4. The activity-based management model has two dimensions: a cost dimension and a process dimension.
5. Process value analysis maximizes systemwide performance by emphasizing activity management.
6. Process value consists of three elements: .driver analysis, activity analysis, and performance measurement.
7. Driver analysis identifies performance levels.
8. Performance measurement is concerned with how well activities are performed.
9. Financial measures of performance focus on the dollar effect of activity performance changes.
10. Reducing non-value added costs decreases activity deficiency.
11. Cost reduction is a measure of activity improvement.
12. Kaizen costing is concerned with reducing the costs by identifying small, continuous improvement for
existing products and processes.
13. Implementing an activity-based management requires careful planning and execution.
14. Identifying, defining, and classifying activities require more attention for ABC than ABM.
15. One of the major reasons for the failure of ABM is lack of upper management support.
16. The common steps in implementing activity-based management are systems planning and activity
identification, definition, and classification.
17. A financial-based responsibility accounting system focuses on the assignment of responsibility to
organizational units and measures performance in financial terms.
18. Activity-based responsibility accounting assigns responsibility to processes and uses only nonfinancial
measures of performance.
19. Financial-based responsibility accounting focuses on functional organizational units.
20. Process improvement refers to incremental and erratic increases in the efficiency of an existing process.
21. The process of improving performance and constantly eliminating waste is known as __________ .
22. The process that focuses on accountability for activities rather than costs and emphasizes systemwide
performance is called __________ .
23. The resources consumed by the activity in producing its output are called __________ .
24. Activities that contribute to customer value and are necessary to remain in business are called __________
activities.
25. A well accepted approach for reducing costs by eliminating waste is called __________ costing.
26. Activity flexible budgeting differs from traditional approaches by using more than __________ drivers to
predict costs.
27. The successful implementation of activity-based management relies on support from higher __________ .
28. The system that provides the justification for implementing activity-based management and addresses the
issues related with its implementation is called __________ .
29. The responsibility accounting system that focuses on organizational units such as departments and plants is
called __________ responsibility.
30. The responsibility accounting system that uses both operational and financial measures is
called __________ responsibility.
31. The major source of information for the activity management system is
32. Activity-based management attempts to
33. Processes are
34. Which of the following is NOT part of the process dimension of the activity-based management model?
35. Which of the following is NOT part of the two-dimensional activity-based management model?
36. What are the two dimensions of an activity-based management model?
37. Which of the following is NOT part of the cost dimension of the activity-based management model?
38. Which of the following is part of the cost and process dimensions of the activity-based management model?
39. What is the purpose of driver analysis?
40. The results or products of an activity are called:
41. The resource(s) consumed by the activity in producing its output is(are) called:
42. The process of identifying, describing, and evaluating the activities an organization performs is called:
43. The effort expended to identify those factors that are the root causes of activity costs is(are) called:
44. An activity output measure is
45. Which of the following process dimensions of the activity-based management model deals with “why”?
46. Which of the following process dimensions of the activity-based management model deals with “what”?
47. Which of the following is NOT an expected outcome of activity analysis?
48. An example of activity reduction would be
49. The activities necessary to remain in business are called:
50. Non-value-added activities
51. Which of the following is an example of a value-added activity?
52. Which of the following is NOT a necessary condition for classification as a value-added activity?
53. Which of the following is a reason for managerial activity to be considered a value-added activity?
54. Which of the following is an example of a non-value-added manufacturing activity?
55. Which of the following is a value-added activity?
56. Which of the following process dimensions of the activity-based management model deals with “how
well”?
57. The effort to reduce costs of existing products and processes is named:
58. The process which involves choosing among various sets of activities that are caused by competing
strategies.
59. The process that focuses on non-value-added activities is called:
60. The process that decreases the time and resources required by different activities is called:
61. The process which increases the efficiency of necessary activities by using economies of scale is called:
62. Which of the following focuses on the relationship of activity outputs to activity inputs?
63. Which of the following is a financial measure of activity efficiency?
64. For non-value-added activities that are unnecessary, the standard quantity is
65. Value-added costs are standard costs based on
66. Value-added costs equal standard quantity times
67. A time-and-motion study revealed that it should take 3 hours to produce a product that currently takes 7
hours to produce. Labor is $9 per hour.
The non-value-added costs are
68. Mendelsohn company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials
shortages. Carrying costs average $4,000 per day. Bach, Inc., a competitor, keeps 10 days of inventory on hand,
and the competitor’s carrying costs average $2,000 per day.
The value-added costs are
69. Mendelsohn company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials
shortages. Carrying costs average $4,000 per day. Bach, Inc., a competitor, keeps 10 days of inventory on hand,
and the competitor’s carrying costs average $2,000 per day.
The non-value-added costs for the company are
70. A company has 19 days of finished goods inventory on hand to avoid stockouts. The carrying costs of the
inventory average $6,000 per day.
The value-added costs would be
71. A company has 19 days of finished goods inventory on hand to avoid stockouts. The carrying costs of the
inventory average $6,000 per day.
The non-value-added costs are
72. A firm’s warranty costs are $125,000 per year. A competitor’s warranty costs are $25,000 per year.
The value-added costs are
73. A firm’s warranty costs are $125,000 per year. A competitor’s warranty costs are $25,000 per year.
The non-value-added costs are
74. A time-and-motion study revealed that it should take 2 hours to produce a product that currently takes 6
hours to produce. Labor is $8 per hour.
The value-added costs are
75. Each unit of product requires 16 pounds of material. Due to scrap and rework, each unit has been averaging
18 pounds of material. The material costs $6 per pound.
If the company wants to reduce non-value-added costs by 25 percent next year, the currently attainable standard
for material would be
76. Setup time for a product is 14 hours. A firm that uses JIT and produces the same product has reduced setup
time by 2 hours. Setup labor is $35 per hour. If the company wants to reduce non-value-added costs by 40
percent next year, the currently attainable standard for setup time would be
77. Bandolero Corporation has developed ideal standards for four activities: labor, materials, inspection, and
receiving. Information is as follows:
Activity
Activity Driver
SQ
AQ
Inspection
Inspection hours
-0-
40,000
Labor
Hours
50,000
56,000
Materials
Pounds
100,000
105,000
Receiving
Orders
150
190
The actual prices paid per unit of each activity driver were equal to the standard prices. The value-added costs for labor are
78. Bandolero Corporation has developed ideal standards for four activities: labor, materials, inspection, and
receiving. Information is as follows:
Activity
Activity Driver
SQ
AQ
Inspection
Inspection hours
-0-
40,000
Labor
Hours
50,000
56,000
Materials
Pounds
100,000
105,000
Receiving
Orders
150
190
The actual prices paid per unit of each activity driver were equal to the standard prices. The non-value-added costs for materials are
79. Bandolero Corporation has developed ideal standards for four activities: labor, materials, inspection, and
receiving. Information is as follows:
Activity
Activity Driver
SQ
AQ
Inspection
Inspection hours
-0-
40,000
Labor
Hours
50,000
56,000
Materials
Pounds
100,000
105,000
Receiving
Orders
150
190
The actual prices paid per unit of each activity driver were equal to the standard prices. The non-value-added costs for inspection are
80. Bandolero Corporation has developed ideal standards for four activities: labor, materials, inspection, and
receiving. Information is as follows:
Activity
Activity Driver
SQ
AQ
Inspection
Inspection hours
-0-
40,000
Labor
Hours
50,000
56,000
Materials
Pounds
100,000
105,000
Receiving
Orders
150
190
The actual prices paid per unit of each activity driver were equal to the standard prices. The actual costs for receiving are
81. Cheshire Cat Company sells one of its products for $100 each. Sales volume averages 750 units per year.
Recently, its main competitor reduced the price of its product to $80. Cheshire Cat Company expects sales to
drop dramatically unless it matches the competitor’s price. In addition, the current profit per unit must be
maintained. Information about the product (for production of 750) is as follows:
SQ
AQ
Actual Cost
Materials (pounds)
2,000
2,500
$50,000
Labor (hours)
450
500
25,000
Setups (hours)
0
600
7,500
Material handling (moves)
0
300
3,750
Warranties (number repaired)
0
200
15,000
The non-value-added cost per unit is
82. A time-and-motion study revealed that it should take 3 hours to produce a product that currently takes 7.5
hours to produce. Labor is $18 per hour. The non-value-added costs are
83. Your company keeps 15 days of materials inventory on hand to avoid shutdowns due to materials shortages.
Carrying costs average $5,000 per day. A competitor keeps 12 days of inventory on hand, and the competitor’s
carrying costs average $3,000 per day. The value-added costs are
84. Your company keeps 15 days of materials inventory on hand to avoid shutdowns due to materials shortages.
Carrying costs average $5,000 per day. A competitor keeps 12 days of inventory on hand, and the competitor’s
carrying costs average $3,000 per day. The non-value-added costs would be
85. Setup time for a product is 12 hours. A firm that uses JIT and produces the same product has reduced setup
time to 1 hour. Setup labor is $6 per hour. The value-added costs are
86. Setup time for a product is 12 hours. A firm that uses JIT and produces the same product has reduced setup
time to 1 hour. Setup labor is $6 per hour. The non-value-added costs are
87. A company has 5 days of finished goods inventory on hand to avoid stockouts. The carrying costs of the
inventory average $5,000 per day. The value-added costs are
88. Each unit of product requires 16 pounds of material. Due to scrap and rework, each unit has been averaging
18 pounds of material. The material costs $4 per pound. The value-added costs are
89. Each unit of product requires 16 pounds of material. Due to scrap and rework, each unit has been averaging
18 pounds of material. The material costs $4 per pound. The non-value-added costs are
90. A company has 5 days of finished goods inventory on hand to avoid stockouts. The carrying costs of the
inventory average $2,500 per day. The non-value-added costs are
91. A firm’s warranty costs are $375,000 per year. A competitor’s warranty costs are $175,000 per year. The
value-added costs are
92. A firm’s warranty costs are $375,000 per year. A competitor’s warranty costs are $175,000 per year. The
non-value-added costs are
93. A time-and-motion study revealed that it should take 3 hours to produce a product that currently takes 7.5
hours to produce. Labor is $18 per hour. The value-added costs are
94. The purpose of trend reporting on non-value-added costs is to
95. Controlling the cost reduction process using Kaizen costing is accomplished
96. The continuous improvement subcycle of Kaizen costing is defined by what sequence?
97. Mattress Company sells one of its products for $35 each. Sales volume averages 2,400 units per year.
Recently, its main competitor reduced the price of its product to $30. Mattress Company expects sales to drop
dramatically unless it matches the competitor’s price. In addition, the current profit per unit must be maintained.
Information about the product (for production of 2,400) is as follows:
SQ
AQ
Actual Cost
Materials (pounds)
7,200
8,000
$12,000
Labor (hours)
1,500
1,600
8,000
Setups (hours)
0
1,600
2,500
Material handling (moves)
0
500
1,500
Warranties (number repaired)
0
300
6,000
The non-value-added cost per unit is
98. The maintenance subcycle is defined by what sequence?
99. A technique for improving performance of activities and processes that searches for best practices is called
100. Hogwarts Company has developed ideal standards for four activities: labor, materials, inspection, and
receiving.
Information is as follows:
Activity
Activity Driver
SQ
AQ
SP
Inspection
Inspection hours
-0-
40,000
$ 4
Labor
Hours
33,000
39,000
7
Materials
Pounds
110,000
115,000
4
Receiving
Orders
150
190
150
The actual prices paid per unit of each activity driver were equal to the standard prices. The non-value-added costs for labor are
101. Hogwarts Company has developed ideal standards for four activities: labor, materials, inspection, and
receiving.
Information is as follows:
Activity
Activity Driver
SQ
AQ
SP
Inspection
Inspection hours
-0-
40,000
$ 4
Labor
Hours
33,000
39,000
7
Materials
Pounds
110,000
115,000
4
Receiving
Orders
150
190
150
The value-added costs for materials are