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Chapter 19 - Value-Based Systems- ABM and Lean
TRUE/FALSE
1. Nonproduction costs are not included in full product cost.
2. Value-based systems are information systems that provide only customer-related information but not
activity-based information.
3. Full product cost is relevant for companies providing services as well as those providing products.
4. A non-value-adding activity is one that adds cost to a product or service and also increases its market
value.
5. A supply chain is a related sequence of value-creating activities within an organization.
6. A value chain involves a sequence of value-creating activities within an organization.
7. A company's value chain includes the value chains of its suppliers but not its customers.
8. Activity-based management is an extension of activity-based costing.
9. Activity-based management focuses on identifying product costs as either value-adding or
nonvalue-adding activities.
10. For a manufacturer, materials storage is a value-adding activity.
11. Activity-based management is useful for both strategic planning and operational decision making.
12. For a manufacturer, the final customer is part of the supply chain and customer service is part of the
value chain.
13. For service organizations, customer relations are part of the supply chain and customers are part of the
value chain.
14. The value chain is the sequence of business activities in which usefulness is added to the products or
the services within an organization.
15. The value chain is also called the supply network.
16. A nonvalue-adding activity is one that increases the cost of a product but does not add to the product's
market value.
17. Nonvalue-adding activity costs do not increase a product's cost because they do not add value to the
product.
18. The repair of machines is an example of a nonvalue-adding activity.
19. The customer’s perspective governs whether an activity adds value to a product or service.
20. Managers eliminate non-value-adding activities that are not essential to an organization.
21. A cost hierarchy and a bill of activities are tools for the implementation of activity-based costing.
22. Only value-adding activities are included in the cost hierarchy.
23. For a bank, a credit check of a loan applicant is an example of a batch-level activity.
24. Typically, there are seven levels in the cost hierarchy.
25. Activity costs per unit equal total activity costs divided by total volume.
26. A bill of activities is used to compute both the costs assigned to activities and the product unit cost.
27. Unit level, batch level, and service level are examples of cost drivers.
28. A bill of activities is useful for estimating a company's profits.
29. A bill of activities may be used to calculate the product unit costs only for manufacturing concerns but
not for service units.
30. Activity-based costing is useful for profit planning.
31. In moving toward the just-in-time continuous work flow concept, a key objective is the elimination of
waste.
32. A just-in-time philosophy seeks to minimize inventories.
33. Traditional environments emphasize functional departments that tend to group similar activities
together.
34. When managing inventory in a just-in-time environment, there is less need to control personnel.
35. In a just-in-time environment, a manager is interested in trends in inventory turnover.
36. Many of the reports and analyses prepared in traditional management settings need to be changed to
satisfy managers' needs in the new manufacturing environment.
37. A just-in-time operating environment requires maintenance of large material and finished goods
inventories in order to meet customer demand for products.
38. One element of a just-in-time operating environment is pull-through production, which means that a
firm starts production of a product only after an order is received.
39. In a just-in-time environment, more quality control inspectors are needed because of the high speed of
production.
40. Just-in-time operating environments encourage continuous improvement of the work environment.
41. The just-in-time operating environment typically is characterized by the positioning of all similar
machines together on the factory floor.
42. Push-through method is used in traditional manufacturing operations.
43. A work cell is an autonomous production line that can perform only one required operation efficiently
at a time.
44. In a just-in-time manufacturing environment, both push-through and pull-through methods trigger
scheduling of production.
45. Storage time is the time a product spends waiting to be worked on once it arrives at the next operation.
46. When managing the production process in a just-in-time environment, the manager's focus is on
throughput time.
47. In order for a manager to reduce throughput time, it is necessary for the accounting system to focus on
calculating units produced per direct labor hour.
48. A just-in-time operation would attempt to eliminate inspection time.
49. A just-in-time operation seeks to eliminate all product support functions.
50. Shifting to a just-in-time approach in a manufacturing environment usually requires a new approach in
evaluating costs.
51. In the JIT environment, direct materials and conversion costs should be nearly uniform for each
product in a work cell.
52. The time a product spends waiting to be worked on is called storage time.
53. The JIT operating philosophy must be adopted by everyone in a company before its total benefits can
be realized.
54. In just-in-time manufacturing, the basic cost classifications used in product costing are materials and
conversion costs.
55. In a just-in-time environment, costs associated with product movement and storage typically decrease,
whereas costs of inspection and queue time typically increase.
56. Product throughput time refers to the amount of time that a product spends in a production cell.
57. The use of computer monitoring allows product costs to be traced directly to work cells.
58. Many indirect costs in a traditional system become direct costs in a JIT system.
59. Cost traceability is decreased in a just-in-time operating environment.
60. Backflush costing eliminates the need for a Cost of Goods Sold account.
61. The three inventory accounts used in traditional costing are replaced by two inventory accounts in
backflush costing.
62. The Cost of Goods Sold account will have the same ending balance whether using traditional or
backflush costing.
63. Backflush costing aims at decreasing waste in the production process.
64. Backflush costing eliminates the need to make journal entries during the period to track cost flows
through the production process as the product is made.
65. Traditional costing and backflush costing provide the same ending balances only when there is little or
no ending inventory.
66. In a traditional environment, costs are tracked through the various production departments as products
or services move through the production process.
67. Both the number of entries and the number of ledger accounts decrease when you change to a
backflush costing system.
68. Lean uses JIT and reorganizes many activities so that they are performed within the work cells.
69. Both activity-based management (ABM) and just-in-time (JIT) seek to eliminate or reduce
nonvalue-adding activities and to improve the allocation of resources.
70. Activity-based costing applies only to production-related activities.
71. Lean’s primary goal is to eliminate waste in business processes.
MULTIPLE CHOICE
1. Full product cost includes
a.
all direct labor and direct material costs and all production and nonproduction costs.
b.
only nonproduction costs.
c.
only the costs of direct material.
d.
only the costs of direct labor.
2. Activity-based management includes all of the following except identifying
a.
customer satisfaction with a product or service.
b.
the resources that are consumed by each activity.
c.
activities as value-adding.
d.
how resources are consumed by each activity.
3. Customer relations are usually part of
a.
the supply chain.
b.
the value chain.
c.
both the value chain and the supply chain.
d.
neither the value chain nor the supply chain.
4. From the four selections below, identify which are necessary to develop the value chain of a product or
service.
1. Processes 3. Nonvalue-adding activities
2. Departments 4. Value-adding activities
a.
1 and 3
b.
2 and 4
c.
1 and 4
d.
1 and 2
5. Which of the following activities would be part of the value chain of a manufacturer?
a.
Inventory control
b.
Product engineering
c.
Cost accounting
d.
Materials storage
6. Which of the following activities would be part of the supply chain of a manufacturer?
a.
Shipping
b.
Customer service
c.
Parts manufacturing
d.
Research and development
7. Which of the following statements is true?
a.
A company's value chain is not part of its supply chain.
b.
A manufacturer's supply chain typically includes research and development and customer
service.
c.
A company's supply chain includes the value chains of its suppliers.
d.
Your supplier's suppliers are part of your value chain.
8. Process value analysis (PVA) identifies all activities of a production and/or assembly operation for the
purpose of
a.
preparing budgets based on activity centers.
b.
determining the value of the process.
c.
replacing cost drivers used in cost assignment analyses with activities.
d.
relating cost assignment to the activities that caused the cost to be incurred.
9. Nonvalue-adding activities
a.
are unnecessary activities.
b.
are included in the value chain of activities.
c.
are all wasteful and targeted for elimination.
d.
add cost to a product or service but does not increase its market value
10. Which of the following is an example of a nonvalue-adding activity?
a.
Product distribution activity
b.
Customer service activity
c.
Data processing activity
d.
Product design activity
11. A nonvalue-adding activity is defined as a(n)
a.
administrative or support activity that adds overhead cost to the product and increases its
market value.
b.
activity that adds cost to a product but does not increase its market value.
c.
activity that adds no cost to the product but increases its market value.
d.
wasteful but unavoidable production activity.
12. For a small coffee cafe, which of the following is a nonvalue-adding activity?
a.
Importing coffee beans
b.
Purchasing ingredients
c.
Cleaning up
d.
Operating the drive-through window
13. For a company offering services, which of the following is a value-adding activity?
a.
Billing the clients
b.
Preparing job order forms
c.
Ordering, receiving, and inspecting supplies
d.
Designing advertisements
14. In activity-based costing, the first step in assigning costs is to
a.
analyze all nonvalue-adding activities to determine if they are necessary support areas.
b.
accumulate costs for each activity.
c.
identify and classify each activity.
d.
separate nonvalue-adding activities from value-adding activities.
15. A manufacturer of audio equipment employing an activity-based cost hierarchy uses the unit, batch,
product, and facility levels to classify its activities.
A unit-level activity is
a.
redesigning the process.
b.
setting up the production process.
c.
testing the product.
d.
insuring the factory.
16. A manufacturer of audio equipment employing an activity-based cost hierarchy uses the unit, batch,
product, and facility levels to classify its activities.
A batch-level activity is
a.
testing products.
b.
inspection.
c.
implementation of engineering changes.
d.
maintenance of the building.
17. A manufacturer of audio equipment employing an activity-based cost hierarchy uses the unit, batch,
product, and facility levels to classify its activities.
A facility-level activity is
a.
testing products.
b.
redesigning the process.
c.
lighting the factory.
d.
materials handling.
18. A manufacturer of audio equipment employing an activity-based cost hierarchy uses the unit, batch,
product, and facility levels to classify its activities.
A product-level activity is
a.
securing the factory.
b.
testing the speakers.
c.
redesigning the installation process.
d.
materials handling.
19. Engineering design is an activity vital to the success of any motor vehicle manufacturer. Identify the
level at which engineering design would be classified in the cost hierarchy used with ABC for a maker
of a line of automobiles sold throughout the world.
a.
Batch-level activity
b.
Product-level activity
c.
Facility-level activity
d.
Unit-level activity
20. Engineering design for mass-produced automobiles is classified as a(n) __________-level activity in
an activity-based costing system.
a.
operations
b.
batch
c.
unit
d.
product
21. Engineering design is an activity vital to the success of any motor vehicle manufacturer. Identify the
level at which engineering design would be classified in the cost hierarchy used with ABC for a maker
of unique luxury automobiles.
a.
Unit-level activity
b.
Batch-level activity
c.
Product-level activity
d.
Facility-level activity
22. Product unit costs computed using activity-based costing compared to product unit costs computed
using a traditional costing approach will
a.
sometimes be the same.
b.
always be higher.
c.
always be the same.
d.
always be lower.
23. Which one of the four levels of the cost hierarchy would be used by a dress manufacturer that uses
activity-based management to design a pattern for a new dress style?
a.
Unit-level activity
b.
Batch-level activity
c.
Product-level activity
d.
Facility-level activity
24. Which one of the four levels of the cost hierarchy would be used by a dress manufacturer that uses
activity-based management for a production run of a certain style of dress in blue?
a.
Unit-level activity
b.
Batch-level activity
c.
Product-level activity
d.
Facility-level activity
25. Which one of the four levels of the cost hierarchy would be used by a dress manufacturer that uses
activity-based management for the routine maintenance of sewing machines?
a.
Unit-level activity
b.
Batch-level activity
c.
Product-level activity
d.
Facility-level activity
26. Engineering design is an activity vital to the success of any motor vehicle manufacturer. Identify the
level at which engineering design would be classified in the cost hierarchy used with ABC for a maker
of built-to-order city and county emergency vehicles (orders are usually placed for 10 to 12 identical
vehicles).
a.
Unit-level activity
b.
Batch-level activity
c.
Product-level activity
d.
Facility-level activity
27. A framework for classifying value-adding and nonvalue-adding activities according to the level at
which their costs are incurred is called a
a.
bill of activities.
b.
full product cost.
c.
value chain.
d.
cost hierarchy.
28. Which one of the four levels of the cost hierarchy would be used by a dress manufacturer that uses
activity-based management for sewing seams on a garment?
a.
Unit-level activity
b.
Batch-level activity
c.
Product-level activity
d.
Facility-level activity
29. The major objective of the just-in-time operating environment is to
a.
create pull-through production.
b.
develop a multiskilled work force.
c.
substitute automation for manual operations.
d.
reduce waste and improve quality and productivity.
30. Xavier Products Company is in the process of adopting the just-in-time operating philosophy for its
trophy-making operations. Indicate which of the following overhead costs is a nonvalue-adding cost
(NVA).
a.
Machine electricity
b.
Machine repairs
c.
Depreciation of the coffee machine
d.
Machine setup labor
31. The initial step in achieving the efficiency of a just-in-time system is to
a.
redesign the plant layout.
b.
replace laborers with machines.
c.
stop ordering materials for inventory.
d.
identify products that are not profitable.
32. In a traditional operating environment, a company usually
a.
plans by using pull-through production scheduling.
b.
has long production runs with infrequent setups.
c.
maintains a minimum inventory level.
d.
uses a multiskilled work force.
33. Under new methods of management, attempts to continuously improve the work environment come
from
a.
top management.
b.
each department manager.
c.
the board of directors.
d.
everyone in the company.
34. Which of the following is not a concern when managing inventory in a just-in-time environment?
a.
Reduction of space needed to store inventory
b.
Inventory turnover
c.
Inventory accuracy
d.
Inventory size reduction
35. In a just-in-time environment, managing the production process focuses on
a.
total processing time per unit.
b.
allocating overhead more accurately.
c.
reducing inventories.
d.
units produced per direct labor hour.
36. Which of the following statements contradicts the philosophy underlying the just-in-time operating
environment?
a.
The work force must become multiskilled in order to operate many different machines and
perform other tasks in the work cell.
b.
A customer order triggers the purchase of materials and the activation of the production
process.
c.
Large inventories are maintained in order to fulfill customer orders on a timely basis.
d.
Flexible work cells are created to increase productivity.
37. In a just-in-time manufacturing environment, a flexible work cell is created by
a.
grouping similar machines together.
b.
bringing people with differing work skills together into one work area.
c.
placing together a complete set of machines that produce a complete product.
d.
grouping people with similar skills together.
38. Which of the following statements about a just-in-time operating environment is true?
a.
Simplicity and quality are good, but inventories and nonvalue-adding activities are not.
b.
Inventories are necessary to support the production function.
c.
Just-in-time is based on push-through production concepts.
d.
Just-in-time is based on the scientific management principles established by F.W. Taylor.
39. How does pull-through production help minimize inventories in a just-in-time operating environment?
a.
Products are made in anticipation of customer demand.
b.
Products are made only when customer orders are received.
c.
Products are made in large production runs.
d.
Products are made identically.
40. According to the just-in-time philosophy,
a.
maintaining inventories wastes resources and frequently covers up poor work or other
problems.
b.
push-through manufacturing flows are the most efficient.
c.
inventories of finished goods should always be available to meet customer demand.
d.
long production runs and large production lot sizes take advantage of economies of scale.
41. A just-in-time environment has smaller inventories than the traditional manufacturing environment. As
a result,
a.
larger production lot sizes are the rule, in order to realize the cost-effectiveness of long
production runs.
b.
the amount of working capital required for inventory typically increases.
c.
the just-in-time environment experiences a lower inventory turnover than the traditional
environment.
d.
the just-in-time environment typically experiences a higher inventory turnover than the
traditional environment.
42. Maintaining consistent high product quality
a.
is both required for and a by-product of the just-in-time environment.
b.
is difficult to obtain in a just-in-time environment because of the severe time constraints
imposed by the just-in-time environment.
c.
requires quality control inspectors at each step of the production process.
d.
is too expensive to obtain in a just-in-time environment.
