Waiting (for the second process)
4
Storage (before delivery to the customer)
10
90. 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.
91. 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%.
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
92. Refer to the Boone Manufacturing information above. What is the manufacturing cycle efficiency for
the year?
a.
66.7%
b.
15.0%
c.
92.5%
d.
75.0%
93. Refer to the Boone Manufacturing information above. What is the total throughput per production
hour?
a.
81.00
b.
1.33
c.
0.67
d.
1.23
B & B Inc.
B & B Inc. manufactures and produces widgets and has the following data available for the year:
Units started into production
180,000
Total good units completed
170,000
Total hours of value-added production time
180,000
Total production hours
255,000
94. Refer to the B & B Inc. information above. What is the manufacturing cycle efficiency for the year?
a.
82.4%
b.
70.6%
c.
56.0%
d.
87.5%
95. Refer to the B & B Inc. information above. What is the total throughput per production hour?
a.
.67
b.
1.79
c.
.64
d.
.82
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
96. 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
97. 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
98. 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
99. 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
100. A system of improvement based on a series of gradual and often small improvements is called:
a.
throughput.
b.
kaizen.
c.
manufacturing cycle efficiency.
d.
centralization.
101. Which of the following statements about kaizen is false?
a.
Employee empowerment will allow kaizen to occur more easily.
b.
It requires active participation by all of a company’s employees.
c.
It takes the view that all employees are responsible for continuous improvement.
d.
It consists of major changes that require large investments on the part of the company.
102. Which of the following statements regarding “quality” is true?
a.
Over the past 20 years or so, the demand by customers for quality products and services at
an affordable price has drastically changed the way companies do business.
b.
Improving quality increases sales through higher customer satisfaction and demand,
reduces costs, and increases the long-term profitability of companies.
c.
Companies have focused on improving the quality of the products or the services they sell
through a variety of initiatives, such as total quality management (TQM), market-driven
quality, and strategic quality management.
d.
All of these are true.
103. Which of the following statements regarding “quality” is false?
a.
Quality is often defined as meeting or exceeding customers’ expectations.
b.
Quality requires that a product be reliable and durable and that these features be provided
at a competitive price.
c.
Studies have found that companies that spend less on quality costs have higher operating
income than those companies who spend more on quality costs.
d.
Improving quality often falls under the customer perspective of the balanced scorecard.
104. Which of the following is generally not one of the classifications of quality costs?
a.
Appraisal (detection) costs
b.
Prevention costs
c.
Internal control costs
d.
External failure costs
105. Which of the following statements about prevention costs is true?
a.
Prevention costs are generally incurred after problems occur.
b.
Design and engineering costs are not properly considered prevention costs.
c.
Generally, companies find that the incurrence of prevention costs reduces long-run
product failure costs.
d.
None of these are true.
106. Which types of quality costs are incurred to eliminate quality problems before they occur?
a.
Appraisal (detection) costs
b.
Prevention costs
c.
External failure costs
d.
Internal failure costs
107. 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
108. 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
109. 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
110. 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
111. 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
112. 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
113. 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
114. 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.
115. 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.
116. 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.
117. External failure costs include:
a.
lost sales.
b.
costs associated with product repairs made under warranty.
c.
product recall costs.
d.
all of these
118. 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
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
$90,000
Quality training
60,000
Rework costs
40,000
Warranty claims
70,000
Inspection of incoming materials
30,000
Scrap costs
24,000
Statistical process control
30,000
119. Refer to the Bradford Inc. information above. What are Bradford’s total prevention costs?
a.
$60,000
b.
$170,000
c.
$75,000
d.
$110,000
120. Refer to the Bradford Inc. information above. What are Bradford’s total appraisal (detection) costs?
a.
$170,000
b.
$110,000
c.
$150,000
d.
$64,000
121. Refer to the Bradford Inc. information above. What are Bradford’s total internal failure costs?
a.
$60,000
b.
$64,000
c.
$150,000
d.
$70,000
122. Refer to the Bradford Inc. information above. What are Bradford’s total external failure costs?
a.
$70,000
b.
$60,000
c.
$140,000
d.
$100,000
123. Grayson & Sons, a local car dealership, has three separate divisions: car repair, new car sales, and used
car sales. The company has decided to implement a new system for evaluating the performance of its
three division managers and the bonuses they receive. The following information is available with
respect to each division for the current year:
Car Repair
Operating income
$2,000,000
Operating assets
3,000,000
In order to receive a bonus, a division manager must have an ROI greater than 50% and residual
income in excess of $1,400,000. If management uses a minimum required rate of return of 18%, which
division manager(s) would be eligible to receive a bonus?
a.
Car repair only
b.
New car only
c.
Used car only
d.
Car repair, new car, and used car
124. Which of the following situations is most likely to pose a problem for companies that use return on
investment (ROI) as a measure of a manager’s performance?
a.
Managers may be encouraged to purchase more operating assets than they otherwise
should.
b.
Managers may be discouraged from purchasing operating assets that could improve
overall profitability.
c.
Managers may be discouraged from reducing their division’s costs.
d.
Managers may be discouraged from paying off debt in order to reduce interest costs.
125. Which of the following forms of manager compensation most likely encourages managers to take a
long-term view of how their performance ties in with the long-term goals of a company?
a.
Year-end cash bonus
b.
Base salary
c.
Stock options
d.
Use of a company car
126. Which of the following statements about managerial compensation is correct?
a.
Compensating managers with year-end cash bonuses always motivates managers to do
what is best for the company as a whole.
b.
From a manager’s standpoint, cash compensation is always preferable over stock-based
compensation.
c.
Manager compensation should always be either cash-based or stock-based.
d.
Stock-based manager compensation does not guarantee a future cash benefit to managers.
127. Which of the following statements about stock-based managerial compensation is correct?
a.
It may cause dysfunctional behavior in the short-run as managers try to drive up the
company’s stock price.
b.
Exercising the option as soon as it is granted will leave the manager better off from a cash
standpoint.
c.
Stock options are always guaranteed to increase in value over time.
d.
Managers always prefer to receive stock options instead of year-end bonuses.
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?
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•
•
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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?
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•
•
•
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 240%. The company’s margin was 20% and its
turnover was 12.
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?