92. Which types of quality costs are incurred in the course of inspecting, identifying, and isolating
defective products and services before they reach the customer?
a.
Appraisal (detection) costs
b.
Prevention costs
c.
External failure costs
d.
Internal failure costs
93. Which types of quality costs are incurred once the product is produced and then found to be defective
before being sold to customers?
a.
Appraisal (detection) costs
b.
Prevention costs
c.
External failure costs
d.
Internal failure costs
94. Which types of quality costs are incurred after a defective product is delivered to a customer?
a.
Appraisal (detection) costs
b.
Prevention costs
c.
External failure costs
d.
Internal failure costs
95. Newman Co. provides training and technical support to its suppliers in order to increase the quality of
purchased raw materials. Which type of quality cost would this most likely be?
a.
External failure cost
b.
Prevention cost
c.
Internal failure cost
d.
Appraisal (detection) cost
96. Barksdale Manufacturing Inc. produces its products in batches containing 100 units. Barksdale
randomly samples 15 of the units in each batch for quality control. The costs of performing these
random sample tests would most likely be which type of quality cost?
a.
External failure cost
b.
Prevention cost
c.
Internal failure cost
d.
Appraisal (detection) cost
97. CLR Inc. is a clothing manufacturer. Recently, CLR made and produced about 2,000 shirts. During the
production process, some of the shirts did not have the required number of buttons sewed on. CLR has
decided to rework the shirts to add the buttons. These rework costs would most likely be classified as
which type of quality cost?
a.
Internal failure costs
b.
Appraisal (detection) costs
c.
Prevention costs
d.
External failure costs
98. FMI is a car manufacturer. Recently, they have had to recall approximately 6,000 cars due to potential
brake pad malfunction. The costs to inspect and replace the brake pads would most likely be classified
as which type of quality cost?
a.
Appraisal (detection) costs
b.
External failure costs
c.
Internal failure costs
d.
Prevention costs
99. Which of the following statements about quality costs is true?
a.
Both external and internal failure costs can be reduced (theoretically to zero) by paying
more attention to quality issues early in the value chain.
b.
Increasing expenditures related to prevention and appraisal can result in significant overall
cost savings in the long run.
c.
It may be prudent to increase expenditures in one or more areas in order to decrease other
costs.
d.
All of these are true.
100. Which of the following statements about quality costs is true?
a.
Even in theory, external failure costs can never be reduced to zero.
b.
The less a company spends on prevention costs, the less they will have to spend on
internal failure costs in the future.
c.
If a company produces and sells a defective product, external failure costs are likely to
exceed all the other types of quality costs.
d.
A low level of internal failure costs usually indicates that more attention needs to be paid
to prevention and appraisal costs.
101. Which of the following statements about quality costs is true?
a.
A low level of internal failure costs usually indicates that more attention needs to be paid
to prevention and appraisal costs.
b.
A low level of external failure costs usually indicates that more attention needs to be paid
to appraisal and internal failure costs.
c.
A high level of internal failure costs usually indicates that more attention needs to be paid
to prevention and appraisal costs.
d.
A high level of appraisal costs usually indicates that more attention needs to be paid to
external failure costs.
102. External failure costs include:
a.
lost sales
b.
costs associated with product repairs made under warranty
c.
product recall costs
d.
all of these
103. If a company consistently produces and sells defective products, which type of quality cost is likely to
be the most costly in the long-run?
a.
Appraisal (detection) costs
b.
External failure costs
c.
Internal failure costs
d.
Prevention costs
104. HNW Ltd.
HNW Ltd. manufactures and sells food processors. A popular consumer magazine has recently
evaluated food processors and has ranked HNW’s processors as being of “poor quality”. As a result,
HNW’s management team has begun to analyze all costs associated with their food processors in more
detail, and the following data has been compiled:
Scrap costs
$ 80,000
Quality training
75,000
Warranty claims
100,000
Rework costs
50,000
Inspection of incoming materials
30,000
Product quality audits
60,000
Statistical process control
40,000
Refer to the HNW Ltd. information above. What are HNW’s total appraisal (detection) costs?
a.
$130,000
b.
$205,000
c.
$ 90,000
d.
$100,000
105. Refer to the HNW Ltd. information above. What are HNW’s total prevention costs?
a.
$ 30,000
b.
$165,000
c.
$105,000
d.
$ 75,000
106. Refer to the HNW Ltd. information above. What are HNW’s total internal failure costs?
a.
$ 50,000
b.
$130,000
c.
$230,000
d.
$170,000
107. Refer to the HNW Ltd. information above. What are HNW’s total external failure costs?
a.
$130,000
b.
$160,000
c.
$180,000
d.
$100,000
108. Bradford Inc.
Bradford Inc. manufactures and sells digital cameras. Bradford’s management team has begun an
intensive program whereby more time and effort are to be focused on product quality than were
focused on in the past. The following data has been compiled regarding expected quality costs in the
upcoming year:
Product quality audits
$60,000
Quality training
50,000
Rework costs
80,000
Warranty claims
40,000
Inspection of incoming materials
25,000
Scrap costs
20,000
Statistical process control
35,000
Refer to the Bradford Inc. information above. What are Bradford’s total prevention costs?
a.
$ 50,000
b.
$170,000
c.
$ 75,000
d.
$110,000
109. Refer to the Bradford Inc. information above. What are Bradford’s total appraisal (detection) costs?
a.
$170,000
b.
$110,000
c.
$120,000
d.
$ 60,000
110. Refer to the Bradford Inc. information above. What are Bradford’s total internal failure costs?
a.
$160,000
b.
$100,000
c.
$125,000
d.
$140,000
111. Refer to the Bradford Inc. information above. What are Bradford’s total external failure costs?
a.
$ 40,000
b.
$ 60,000
c.
$140,000
d.
$100,000
112. Which of the following items used to measure customer response time would not be used to measure
manufacturing cycle time?
a.
Time it takes to process raw materials into a completed product.
b.
Time spent waiting for a machine’s availability.
c.
Time spent inspecting the materials for quality control.
d.
Time spent delivering the product to the customer.
113. The total time a product is in production, including process time, inspection time, wait time, and move
time, is called:
a.
efficiency time.
b.
manufacturing cycle time.
c.
customer response time.
d.
value-added time.
114. The number of good units that can be made in a given period of time is called:
a.
throughput.
b.
kaizen.
c.
manufacturing cycle efficiency.
d.
customer response time.
115. In general, as the manufacturing cycle time decreases, throughput will:
a.
decrease.
b.
increase.
c.
stay the same.
d.
be eliminated.
116. Manufacturing cycle efficiency (MCE) is calculated as follows:
a.
Manufacturing-cycle time Value-added time
b.
Value-added time Manufacturing-cycle time
c.
Value-added time Non-value added time
d.
Manufacturing-cycle time Non-value added time
117. Fleming Inc. manufactures and sells wooden bookshelves. Which of the following steps in the
manufacturing cycle would be considered non-value added time?
a.
Time spent cutting the wood for the bookshelves.
b.
Time spent assembling the bookshelves.
c.
Time spent moving the bookshelves from the assembly department to the staining
department.
d.
Time spent staining the bookshelves.
NARRBEGIN: Graham Pottery Inc.
Graham Pottery Inc.
Graham Pottery Inc. produces an item that gives rise to the following activities:
Activity
Hours
Processing (two departments)
25
Inspecting
2
Rework
1
Moving (three moves)
6
Waiting (for the second process)
18
Storage (before delivery to the customer)
24
NARREND
118. Refer to the Graham Pottery Inc. information above. The total manufacturing cycle time is:
a.
76 hours
b.
52 hours
c.
28 hours
d.
34 hours
Managerial ACCT Test Bank Chapter 11 27
119. Refer to the Graham Pottery Inc. information above. The manufacturing cycle efficiency is:
a.
44.7%
b.
32.9%
c.
68.4%
d.
36.8%
NARRBEGIN: Picture Puzzle Company
Picture Puzzle Company
The Picture Puzzle Company has the following estimates for producing a single batch of 500 custom-
made puzzles:
Wait time
10 days
Inspection time
1 hour
Processing time
3 days
Move time
1 day
NARREND
120. Refer to the Picture Puzzle Company information above. The total value-added time is:
a.
14 days and 1 hour
b.
13 days
c.
3 days
d.
4 days
121. Refer to the Picture Puzzle Company information above. The total non-value-added time is:
a.
11 days and 1 hour
b.
11 days
c.
1 day
d.
10 days
NARRBEGIN: Grandma’s Jellies Inc.
Grandma’s Jellies Inc.
Grandma’s Jellies Inc. produces and distributes a variety of jellies. Two hundred jars of jelly are
produced in a single batch. The following activities are performed per batch:
Activity
Hours
Processing (two departments)
6
Inspecting
1
Moving (three moves)
3
Waiting (for the second process)
4
Storage (before delivery to the customer)
10
NARREND
122. Refer to the Grandma’s Jellies Inc. information above. The manufacturing cycle time per batch is:
a.
7 hours
b.
14 hours
c.
10 hours
d.
24 hours
123. Refer to the Grandma’s Jellies Inc. information above. The manufacturing cycle efficiency per batch is:
a.
29.2%
b.
41.7%
c.
25.0%
d.
83.3%
NARRBEGIN: Boone Manufacturing
Boone Manufacturing
Boone Manufacturing produces a variety of lamp shades which it sells to retail stores throughout the
country. The following data is available for the year:
Units started into production
200,000
Total good units completed
185,000
Total hours of value-added production time
100,000
Total production hours
150,000
NARREND
124. Refer to the Boone Manufacturing information above. What is the manufacturing cycle time efficiency
for the year?
a.
66.7%
b.
15.0%
c.
92.5%
d.
75.0%
125. Refer to the Boone Manufacturing information above. What is the total throughput per production
hour?
a.
81
b.
1.33
c.
.67
d.
1.23
NARRBEGIN: B & B Inc.
B & B Inc.
B & B Inc. manufactures and produces widgets and has the following data available for the year:
Units started into production
160,000
Total good units completed
140,000
Total hours of value-added production time
170,000
Total production hours
250,000
NARREND
126. Refer to the B & B Inc. information above. What is the manufacturing cycle time efficiency for the
year?
a.
82.4%
b.
68.0%
c.
56.0%
d.
87.5%
127. Refer to the B & B Inc. information above. What is the total throughput per production hour?
a.
.56
b.
1.79
c.
.64
d.
.82
SHORT ANSWER
1. What is the main difference between centralized and decentralized organizations?
2. What are two advantages of decentralization?
3. What are two disadvantages of decentralization?
4. What is the main idea underlying responsibility accounting?
5. How do the roles of cost center managers, revenue center managers, profit center managers, and
investment center managers differ?
6. Describe and explain the two types of fixed costs classifications that are found when a company
prepares a segmented income statement as opposed to a variable costing income statement.
7. The manager of a local retail store tells you that, “An unprofitable segment should always close.” Do
you agree or disagree with this statement and why?
8. What does the ratio return on investment (ROI) measure and what are some possible ways it can be
computed?
9. Austin Inc. has a return on investment (ROI) of 10.2%. The company’s margin was 60% and its
turnover was 17.
How do margin and turnover relate back to ROI and what kinds of information do each of them
provide?
10. Which two items are typically omitted from “net operating income” for return on investment (ROI)
purposes. Why are these two items omitted?
11. What is residual income and how is it computed? Is it better for residual income to be high or low?
12. The manager of a local department store, Nelda Smith, has just been informed that she will start being
evaluated on the basis of her segment’s ROI in relation to the ROI values of other department stores
owned by her employer. Give three ways she can increase her segment’s ROI?
13. Under what type of situation would return on investment (ROI) be a better performance measure than
residual income and vice versa?
14. What is a potential disadvantage of using ROI as a performance measure for management?
15. When should residual income not be used to compare the performance of two investment centers?