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43. In a just-in-time environment,
a.
production runs are interrupted each day at setup time to perform routine maintenance.
b.
scheduled and preventive maintenance is extremely important.
c.
cost savings are realized by performing maintenance whenever it is needed.
d.
routine minor maintenance is always performed by the repair department.
44. Just-in-time operations attempt to significantly reduce
a.
inspection time and moving time.
b.
only storage time.
c.
moving time and processing time.
d.
inspection time and processing time.
45. The actual amount of time that a product is being worked on is known as the
a.
moving time.
b.
inspection time.
c.
processing time.
d.
queue time.
46. In a just-in-time operating environment, the key measure of cost incurred is
a.
direct labor hours.
b.
push-through time.
c.
throughput time.
d.
indirect costs.
47. A change to just-in-time manufacturing expands mainly the role of the
a.
cost accountant.
b.
machine operator.
c.
purchasing manager.
d.
quality control inspector.
48. For work done during August, Printing Press Company incurred direct materials costs of $130,000 and
conversion costs of $226,000. The company employs a traditional operating philosophy. At the end of
August, it was determined that the Work in Process Inventory account had been assigned $1,000 of
costs, and the ending balance of the Finished Goods Inventory account was $3,000. There were no
beginning inventory balances. How much was cost of goods manufactured during August?
a.
$356,000
b.
$355,000
c.
$353,000
d.
$352,000
49. For work done during August, Printing Press Company incurred direct materials costs of $151,000 and
conversion costs of $250,000. The company employs a traditional operating philosophy. At the end of
August, it was determined that the Work in Process Inventory account had been assigned $1,000 of
costs, and the ending balance of the Finished Goods Inventory account was $3,000. There were no
beginning inventory balances. How much was charged to the Cost of Goods Sold account during
August?
a.
$401,000
b.
$400,000
c.
$398,000
d.
$397,000
50. In a just-in-time setting, the time spent reworking defective units is called __________ time.
a.
storage
b.
inspection
c.
queue
d.
throughput
51. Backflush costing aims at reducing waste in the
a.
accounting system.
b.
cost of goods sold.
c.
storage of raw materials.
d.
production process.
52. For work done during August, Printing Press Company incurred direct materials costs of $139,000 and
conversion costs of $260,000. The company employs a just-in-time operating philosophy and
backflush costing. At the end of August, it was determined that the Work in Process Inventory account
had been assigned $1,080 of costs, and the ending balance of the Finished Goods Inventory account
was $1,220. There were no beginning inventory balances. What was the ending balance of the Cost of
Goods Sold account for August?
a.
$396,700
b.
$397,780
c.
$397,920
d.
$399,000
53. For work done during August, Printing Press Company incurred direct materials costs of $130,000 and
conversion costs of $248,000. The company employs a just-in-time operating philosophy and
backflush costing. At the end of August, it was determined that the Work in Process Inventory account
had been assigned $1,000 of costs, and the ending balance of the Finished Goods Inventory account
was $3,000. There were no beginning inventory balances. What is the Cost of Goods Sold account's
ending balance for August?
a.
$378,000
b.
$377,000
c.
$375,000
d.
$374,000
54. Both traditional and backflush costing have an account for __________ Inventory.
a.
Materials
b.
Raw in Process
c.
Finished Goods
d.
Conversion Costs
55. In a just-in-time environment using backflush costing, the entry to record the use of materials for the
month's production is debit __________ and credit __________.
a.
Work in Process Inventory; Materials Inventory
b.
Cost of Goods Sold; Finished Goods Inventory
c.
Conversion Costs; Accounts Payable
d.
No entry
56. When using backflush costing, product costs are first accumulated in the __________ account.
a.
Cost of Goods Sold
b.
Work in Process Inventory
c.
Conversion Costs
d.
Finished Goods Inventory
57. Comparing the goals of activity-based management (ABM) and lean operations, we can say that
__________ aim(s) to simplify activities.
a.
JIT
b.
ABM
c.
both ABM and JIT
d.
neither ABM nor JIT
58. Comparing activity-based management (ABM) and lean operations, all of the following are correct
except
a.
both identify value-adding and nonvalue-adding activities.
b.
ABM uses a more complex accounting system.
c.
both are activity-based systems.
d.
JIT focuses on the accuracy of cost assignment.
59. Hugley Corp. recently installed three just-in-time work areas in its blank key-making division. The
work areas will make large quantities of identical key blanks for door lock manufacturers. Select the
best answer for how Hugley should run its business and account for product costs.
a.
Backflush costing
b.
ABC
c.
JIT and ABM
d.
ABC and backflush costing
SHORT ANSWER
1. How can activity-based systems help managers in a global marketplace?
2. How do managers measure an activity's performance?
ANS:
3. Distinguish between a supply chain and a value chain. How do they relate to each other?
4. Last year, Amanda Jones opened a candy store in a busy shopping center. She spent a lot on
advertising and attracted many customers into the store, but very few customers made purchases and
sales were declining. Amanda paid attention to questions and requests made by customers and
determined that they often requested items that were within the scope of her business but that she did
not carry. When she offered to order items for her customers, delivery was usually too late and, again,
sales were lost. What measures should Amanda take to improve her business?
5. What would a company using an activity-based management approach attempt to do in regard to
activities that add value to the product and those that do not?
6. Identify the following activities, for an automobile manufacturer, as either value-adding (V) or
nonvalue-adding (NV).
_____ a. Moving products
_____ b. Storing parts
_____ c. Research and
development
_____ d. Inventory control
_____ e. Production
_____ f. Customer service
_____ g. Cost accounting
_____ h. Engineering
7. A goal of process value analysis (PVA) is to reduce nonvalue-adding activities. Outline a procedure a
company could use to accomplish this goal.
8. Identify the following activities, performed on a manufactured product, as value-adding (V) or
nonvalue-adding (NV).
_____ a. Receiving
_____ b. Storing raw materials
_____ c. Moving materials
_____ d. Working on product
_____ e. Painting product
_____ f. Packing and shipping
_____ g. Engineering design of product
_____ h. Storing finished goods
9. Why is process value analysis not part of the general ledger accounting system?
ANS:
10. Define activity-based costing. Explain why this approach to cost assignments is superior to the
traditional method of using a plantwide overhead cost rate. Will activity-based costing always result in
lower product costs? Defend your answer.
11. Listed below are the activities of Tammy's Toy Store. Identify the level at which each activity would
be classified in the cost hierarchy used with ABC. Indicate each activity as unit level (UL), batch level
(BL), product level (PL), or facility level (FL).
_____ a. Designing a new product
_____ b. Using direct materials
_____ c. Setting up equipment
_____ d. Maintaining a building
_____ e. Assembling the product
_____ f. Receiving raw materials
_____ g. Handling materials
_____ h. Cleaning up processing area
12. Distinguish between push-through and pull-through production methods. How does pull-through
production meet the requirements of a just-in-time operating environment?
ANS:
13. When using a just-in-time system, what qualities should be used to evaluate a supplier?
14. President/CEO to her Controller:
“On the golf course yesterday I overheard John Jeffers, the CEO for Octal, say that the problem with
many manufacturing companies today is their antiquated manufacturing cost accounting systems. It
appears to me that our cost accounting system has served us well as our company has grown and
should continue to serve us well as we move into JIT production with our new flexible manufacturing
system.”
As the Controller, respond to the President/CEO.
15. Explain how a just-in-time operating philosophy reduces the time it takes to complete the production
of a product. Include in your answer the classifications of time that are affected. How does such a
change help to reduce product costs?
ANS:
16. Listed below are a number of common manufacturing costs. For each cost, state whether the cost
would be considered a direct (D) or indirect (I) cost in a traditional manufacturing environment and in
a JIT manufacturing environment.
Cost Element
Traditional
Manufacturing
Environment
JIT
Manufacturing
Environment
Insurance
Property taxes
Equipment depreciation
Raw materials
Materials handling
Operating supplies
Power
Heat and light
Labor of equipment operators
President's salary
17. Ressano Manufacturing had the following transactions during March. There were no beginning
inventory balances.
a. Purchased $96,000 of direct materials, on account.
b. Incurred direct labor costs, $83,000.
c. Applied $88,000 of overhead to production.
d. Completed units costing $252,000.
e. Sold units costing $250,000.
Using backflush costing, show the flow of costs using the T accounts below. Label each entry with the
appropriate letter.
Accounts Payable
Conversion Costs
Cost of Goods Sold
Factory Labor
Work in Process Inventory
Overhead
Finished Goods Inventory
18. M. E. Taylor Enterprises had the following transactions during October. There were no beginning
inventory balances.
a. Purchased $37,300 of direct materials, on account.
b. Incurred direct labor costs, $29,250.
c. Applied $37,500 of overhead to production.
d. Completed units costing $88,450.
e. Sold units costing $76,130.
Using backflush costing, show the flow of costs using the T accounts below. Label each entry with the
appropriate letter.
Accounts Payable
Conversion Costs
Cost of Goods Sold
Factory Labor
Work in Process Inventory
Overhead
Finished Goods Inventory
19. The Yeva Company produces children's automobile car seats. The company recently changed from a
traditional production environment to just-in-time work cells. The company's car seats are widely
distributed in popular retail stores. Would you recommend the use of backflush costing or ABM/ABC
for tracking product costs? Explain your choice of system.
20. Resser Corporation manufactures serving trays and utensils for use by airlines for meal service.
Several airlines order these products in large quantities. Resser had adopted an activity-based
management philosophy. Listed below are the principal activities of the company.
Product inspection
Product packaging
Materials storage
Product engineering
Product scheduling
Materials purchasing
Production—machine setup
Building maintenance
New product design
Product marketing
Accounting
Moving work in process
Inventory control
Production—assembly
Production area cleanup
Human resources services
Product rework
Depreciation of building
a. Identify activities that are nonvalue-adding.
b. Analyze each of the nonvalue-adding activities and determine which are necessary. Suggest how
each of the activities that you classified as unnecessary could be reduced or eliminated.
21. You have been invited to address the Students In Free Enterprise (SIFE) team of your alma mater. The
topic the team has chosen is the just-in-time philosophy in terms that beginning business students can
readily comprehend. The meeting is taking place in the college cafeteria. Reservations and menu
choices have been made in advance. It has been suggested that you use that setting as an example of
the implementation of a JIT operating system. It will also be beneficial if you indicate in your talk
some instances where JIT would be less suitable in the college food services situation. What will you
say?
22. Smith and Hodges produce notions for the clothing industry. It uses four work cells for its four product
lines. Just-in-time operations and costing methods have recently been adopted. A overhead rate of
$9.50 per machine hour is applied to work cell #2. There were no beginning inventories on February 1.
Operating costs for February for work cell #2 are as follows:
Direct materials purchased on account and used
$ 26,815
Parts purchased on account and used
19,320
Direct labor costs incurred
17,000
Overhead costs applied
59,400
Cost of goods completed during February
119,635
Ending work in process inventory
2,900
Ending finished goods inventory
1,850
a. Using T accounts and traditional costing, show the flow of costs.
Accounts Payable
Materials Inventory
Work in Process Inventory
Finished Goods Inventory
Factory Labor
Cost of Goods Sold
Overhead
b. Using T accounts and a backflush costing system, show the flow of costs.
Accounts Payable
Conversion Costs
Cost of Goods Sold
Factory Labor
Work in Process Inventory
Overhead
Finished Goods Inventory
c. What is the total cost of goods sold for the month of February?
