26managing Accounting in A Changing Environment
26managing Accounting in A Changing Environment
26managing Accounting in A Changing Environment
ESSAY:
8. Many organizations found that investment in prevention and appraisal usually resulted in major
cost savings in other areas. Explain this phenomenon.
Better prevention of poor quality often reduces all other costs of quality. With fewer problems
in quality, appraisal is needed because the products are made right the first time. Fewer
defective units also reduce internal and external failure costs as the occasion for repairs, rework,
and recalls decrease.
It is easier to design and build quality in than try to inspect or repair quality in. Theoretically, if
prevention efforts are completely successful, there will be no need to incur appraisal costs and
there will be no internal failure or external failure costs. In practice, appraisal costs usually do
not decrease, partly because management needs to ensure that quality is there as expected.
Nonconformance costs, however, decrease at a much faster pace than prevention costs increase.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
9. Define quality.
Quality for a product or service can be defined as a “product or service that conforms to a design
which meets or exceeds the expectations of customers at a price they are willing to pay.”
11. At what point can a firm consider its effort to achieve total quality management complete?
TQM is a continual effort and never completes. Global competition, new technology, and ever-
changing customer expectations make TQM a continual effort for a successful firm.
18. Why is it often necessary to revise a firm’s compensation and appraisal systems when
implementing TQM?
Reward and recognition are the best means of reinforcing the emphasis on TQM. Moreover,
proper reward and recognition structures can be very powerful stimuli to promote TQM. Efforts
and progress will most likely be short-lived if no change is made to the compensation /
appraisal / recognition systems to make them in line with the objectives of the firm’s TQM.
19. Describe how the internet can be used to reduce the cost of placing purchase orders.
The sequence of activities involved in placing a purchase order can be facilitated by use of the
Internet. A company can streamline the procurement process for its customers – e.g., having
online a complete price list, information about expected shipment dates, and a service order
capability that is available 24 hours a day with email or fax confirmation.
2. The day-to-day work of management teams will typically comprise all of the following activities
except:
A. decision making.
B. planning.
C. cost minimizing.
D. directing operational activities.
E. controlling.
3. Which of the following functions is best described as choosing among available alternatives?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Budgeting.
4. Which of the following managerial functions involves a detailed financial and operational
description of anticipated operations?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Measuring.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
5. Which of the following involves the coordination of daily business functions within an
organization?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Motivating.
6. Titan Company has set various goals, and management is now taking appropriate action to
ensure that the firm achieves these goals. One such action is to reduce outlays for overhead,
which have exceeded budgeted amounts. Which of the following functions best describes this
process?
A. Decision making.
B. Planning.
C. Coordinating.
D. Controlling.
E. Organizing.
9. Employee empowerment involves encouraging and authorizing workers to take initiatives to:
A. improve operations.
B. reduce costs.
C. improve product quality.
D. improve customer service.
E. all of the above.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
10. The process of encouraging and authorizing workers to take appropriate initiatives to improve
the overall firm is commonly known as:
A. planning and control.
B. employee empowerment.
C. personnel aggressiveness.
D. decision making.
E. problem recognition and solution.
11. Which of the following business models considers financial, customer, internal operating, and
other measures in the evaluation of performance?
A. Deterministic simulation.
B. Balanced scorecard.
C. Payoff matrix.
D. Decision tree.
E. Chart of operating performance (COP).
15. Which of the following would likely be considered an internal user of accounting information
rather than an external user?
A. Stockholders.
B. Consumer groups.
C. Lenders.
D. Middle-level managers.
E. Government agencies.
16. All of the following entities would have a need for managerial accounting information except:
A. Dell Computer.
B. The Los Angeles Dodgers baseball club.
C. Office Depot.
D. The Federal Bureau of Investigation (FBI).
E. None of the above responses is correct, as all of these entities would use managerial
accounting information.
17. Which of the following choices correctly depicts whether Bank of America, Microsoft, and
Florida State University would have a need for managerial accounting?
Bank Florida State
of America Microsoft University
A. Yes Yes No
B. Yes No Yes
C. Yes Yes Yes
D. No Yes No
E. No Yes Yes
19. Which of the following statements represents a similarity between financial and managerial
accounting?
A. Both are useful in providing information for external users.
B. Both are governed by GAAP.
C. Both draw upon data from an organization's accounting system.
D. Both rely heavily on published financial statements.
E. Both are solely concerned with historical transactions.
20.Which of the following employees at American Airlines would not be considered as holding a line
position?
A. Pilot.
B. Chief financial officer (CFO).
C. Flight attendant.
D. Ticket agent.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
E. Baggage handler.
21. Which of the following employees would be considered as holding a line position?
A. The controller of Exxon Corporation.
B. The vice-president for government relations of Microsoft.
C. The manager of food and beverage services at Disney's Magic Kingdom.
D. A secretary employed by Hewlett-Packard.
E. None of the above.
22. Which of the following employees at Starbucks would likely be considered as holding a staff
position?
A. The company's chief operating officer (COO).
B. The manager of a store located in Kansas City, Missouri.
C. The company's lead, in-house attorney.
D. The company's chief financial officer (CFO).
E. Both the company's lead, in-house attorney and the chief financial officer.
24. Which of the following typically does not relate to the role of a controller?
A. A controller supervises the accounting department.
B. A controller safeguards an organization's assets.
C. A controller oversees the preparation of reports required by governmental authorities.
D. A controller normally assumes a narrow role within the organization, often preventing the
individual's rise to top management ranks.
E. Choices "B" and "D" above.
33. Which of the following statement(s) about just-in-time (JIT) inventory management is (are)
true?
III. JIT is an inventory technique that focuses on reduction of both inventory and related
inventory costs.
A. I only.
B. II only.
C. III only.
D. II and III.
E. I, II, and III.
34. Ohio Corporation recently implemented a just-in-time (JIT) production system along with a
series of continuous improvement programs. If the firm is now considering adopting a total
quality management (TQM) program, it would likely find that TQM:
A. is consistent with both JIT and continuous improvement.
B. is consistent with JIT but inconsistent with continuous improvement.
C. is consistent with continuous improvement but inconsistent with JIT.
D. is inconsistent with both JIT and continuous improvement.
E. is an antiquated management technique.
36. The value chain of a manufacturer would tend to include activities related to:
A. manufacturing.
B. research and development.
C. product design.
D. marketing.
E. all of the above.
37. Which of the following choices correctly depicts activities that would be included in a
manufacturer's value chain?
Research and
Development Marketing Distribution
A. Yes Yes No
B. Yes No Yes
C. Yes Yes Yes
D. No Yes No
E. No Yes Yes
38. Which of the preceding activities would likely not be considered part of The Gap clothing
company’s value chain?
A. Designing a new product line.
B. Locating and then negotiating terms with a clothing manufacturer.
C. Marketing an existing product line.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
40. In order for a company to achieve a sustainable competitive advantage, it must perform
value chain activities:
A. at the same quality level as competitors, at the same cost.
B. at the same quality level as competitors, but at a lower cost.
C. at a higher quality level than competitors, at a higher cost.
D. at a higher quality level than competitors, but at no greater cost.
E. at either the same quality level as competitors, but at a lower cost, or at a higher quality
level than competitors, but at no greater cost.
41. The process of managing the various activities in the value chain, along with the associated
costs, is commonly known as:
A. activity-based costing.
B. strategic cost management.
C. total quality management.
D. computer-integrated costing.
E. sound management practices (SMP).
42. A company has a bottleneck operation that slows production. Which of the following tools or
approaches could the firm use to determine the most cost-effective ways to eliminate this
problem?
A. Linear programming.
B. Theory of constraints.
C. Decision-tree diagrams.
D. Payoff matrices.
E. Strategic path analysis (SPA).
43. Which of the following can be linked to the relatively recent wave of corporate scandals?
A. Greedy corporate executives.
B. Managers who make over-reaching business deals.
C. Lack of oversight by companies' audit boards and boards of directors.
D. Shoddy work by external auditors.
E. All of the above.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
44. Which of the following acts strives to improve corporate governance and the quality of corporate
accounting/reporting?
A. Robinson-Patman.
B. Taft-Hartley.
C. Sarbanes-Oxley.
D. Bush-Cheney.
E. Franks-Ashcroft.
45. Which of the following statements about the ethical climate of business is false?
A. Greedy corporate executives are, in part, to blame for the relatively recent rash of corporate
scandals.
B. Unethical business behavior can have a negative impact on our economy.
C. The Sarbanes-Oxley Act strives to improve the overall quality of corporate reporting.
D. The Robinson-Patman Act strives to improve the overall quality of corporate reporting.
E. Corporate scandals have served as the accounting profession’s wake-up call to pay increased
attention to ethical issues in the conduct of business.
48. Assume that a managerial accountant regularly communicates with business associates to avoid
conflicts of interest and advises relevant parties of potential conflicts. In so doing, the
accountant will have applied the ethical standard of:
A. objectivity.
B. confidentiality.
C. integrity.
D. credibility.
E. unified behavior.
51. Which of the following should be considered in the selection of an accounting system?
a. behavioral effects of the system on managers
b. costs of buying and operating the system
c. improved decision-making power resulting from the system
d. all of the above
52. The cost-benefit balance weighs _____ costs against _____ benefits:
a. actual; actual
b. actual; estimated
c. estimated; estimated
d. estimated; actual
55. The focus on customers occurs in which functions of the value chain:
a. research and development
b. production
c. marketing
d. distribution
e. all of the above
57. The functions of planning for control, evaluating and consulting, and governmental reporting are
typically assumed within organizations by:
a. the company treasurer
b. the company controller
c. the company vice-president of marketing
d. external auditors
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
60. Trends that are causing changes in management accounting today include:
a advances in technology
b. increased global competition
c. a shift from a manufacturing to a service-based economy
d. a., b.
e. a., b., c.
61. The most dominant influence on management accounting over the past decade is:
a. increased global competition
b. a shift from a manufacturing to a service-based economy
c. advances in technology
d. none of the above
62. Ethical obligations of management accountants are governed by the Standards of Ethical Conduct
for Management Accountants, which outlines responsibilities regarding:
a. incompetence, full disclosure of all information, moral decay, and partisanship
b. assisting in maximizing profits regardless of the means necessary
c. competence, confidentiality, integrity, and objectivity
e. none of these
65. The phase of accounting concerned with providing information to managers for use in planning and
controlling operations and in decision making is called:
A) throughput time.
B) managerial accounting.
C) financial accounting.
D) controlling.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
68. For a manufacturing company, what type of position (line or staff) is each of the
following?
71. Which of the following is NOT one of the three major customer value propositions discussed in
the text?
A) customer intimacy
B) discount pricing
C) operational excellence
D) product leadership
72. Which of the following is NOT one of the five steps in the lean thinking model discussed in the
text?
A) Continuously pursue perfection in the business process.
B) Identify value in specific products/services.
C) Implement an enterprise system.
D) Create a pull system that responds to customer orders.
73. One consequence of a change from a push to a properly implemented pull production system can
be:
A) an increase in work in process inventories.
B) an extremely difficult cultural change due to enforced idleness when demand falls below
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
production capacity.
C) an increased mismatch between what is produced and what is demanded by customers.
D) an increase in raw materials inventories.
74. All of the following are characteristics of a pull production system EXCEPT:
A) Inventories are reduced to a minimum by purchasing raw materials and producing units only
as needed to meet consumer demand.
B) Raw materials are released to production far in advance of being needed to ensure no
interruptions in work flows due to shortages of raw materials.
C) Products are completed just in time to be shipped to customers.
D) Manufactured parts are completed just in time to be assembled into products.
75. The five step framework used to guide Six Sigma improvement efforts includes all of the
following EXCEPT:
A) Analyze.
B) Control.
C) Digitize.
D) Measure.
76.The Sarbanes-Oxley Act of 2002 contains all of the following provisions EXCEPT:
A) The audit committee of the board of directors of a company must hire, compensate, and
terminate the public accounting firm that audits the company's financial reports.
B) Financial statements must be audited once every three years by the Government Accounting
Office.
C) Both the CEO and CFO must certify in writing that their company's financial statements and
accompanying disclosures fairly represent the results of operations.
D) A company's annual report must contain an internal control report.
77. The Institute of Management Accountants' Standards of Ethical Conduct contains a policy
regarding confidentiality that requires that management accountants:
A) refrain from disclosing confidential information acquired in the course of their work except
when authorized by management.
B) refrain from disclosing confidential information acquired in the course of their work in all
situations.
C) refrain from disclosing confidential information acquired in the course of their work except
when authorized by management, unless legally obligated to do so.
D) refrain from disclosing confidential information acquired in the course of their work in all
cases since the law requires them to do so.
78. Which of the following is NOT one of the Institute of Management Accountants' five Standards
of Ethical Conduct?
A) Competence
B) Confidentiality
C) Independence
D) Integrity
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
84. One of the ways managerial accounting differs from financial accounting is that managerial
accounting
a. is bound by generally accepted accounting principles.
b. classifies information in different ways.
c. does not use financial statements.
d. deals only with economic events.
89. Which classification of costs is most relevant for income statements to be used internally?
a. Behavior.
b. Function.
c. Method of payment.
d. Object.
90. The set of processes that transform raw materials into finished products is known as a
a. differentiation strategy.
b. flexible manufacturing system.
c. lowest cost strategy.
d. value chain.
92. The period that begins with the arrival of materials and ends with the shipment of a completed good
is the
a. cycle time.
b. manufacturing cell.
c. computer-integrated manufacturing.
d. performance period.
b. The frequency with which decisions are made that require the information in the report.
c. The cost of preparing the report.
d. All of the above.
97. The professional certification most relevant for managerial accountants is the
a. CMA.
b. CPA.
c. CSA.
d. MAS.
105. Conventional and just-in-time manufacturers differ in that the conventional manufacturer is likely
to
a. be a new entrant into its industry.
b. need less storage space than its JIT competitors.
c. give less credibility to management accounting reports.
d. have a longer production cycle than its JIT competitors.
106. Managerial accounting applies to each of the following types of businesses except
a. service firms.
b. merchandising firms.
c. manufacturing firms.
d. Managerial accounting applies to all types of firms.
110. The major reporting standard for presenting managerial accounting information is
a. relevance.
b. generally accepted accounting principles.
c. the cost principle.
d. the current tax law.
120. Which of the following statements about internal reports is not true?
a. The content of internal reports may extend beyond the double-entry accounting system.
b. Internal reports may show all amounts at market values.
c. Internal reports may discuss prospective events.
d. Most internal reports are summarized rather than detailed.
121. In an analogous sense, external user is to internal user as generally accepted accounting
principles are to
a. timely.
b. special-purpose.
c. relevance to decision.
d. SEC.
124. What activities and responsibilities are not associated with management's functions?
a. Planning
b. Accountability
c. Controlling
d. Directing
129. The management function that requires managers to look ahead and establish objectives is
a. controlling.
b. directing.
c. planning.
d. constraining.
130. In determining whether planned goals are being met, a manager is performing the function of
a. planning.
b. follow-up.
c. directing.
d. controlling.
134. The work of factory employees that can be physically and directly associated with converting
raw materials into finished goods is
a. manufacturing overhead.
b. indirect materials.
c. indirect labor.
d. direct labor.
135. Which one of the following would not be classified as manufacturing overhead?
a. Indirect labor
b. Direct materials
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
138. Which one of the following is not a cost element in manufacturing a product?
a. Manufacturing overhead
b. Direct materials
c. Office salaries
d. Direct labor
139. A manufacturing process requires small amounts of glue. The glue used in the production
process is classified as a(n)
a. period cost.
b. indirect material.
c. direct material.
d. miscellaneous expense.
144. For the work of factory employees to be considered as direct labor, the work must be
conveniently and
a. materially associated with raw materials conversion.
b. periodically associated with raw materials conversion.
c. physically associated with raw materials conversion.
d. promptly associated with raw materials conversion.
146. Cotter pins and lubricants used irregularly in a production process are classified as
a. miscellaneous expense.
b. direct materials.
c. indirect materials.
d. nonmaterial materials.
147. Which of the following is not another name for the term manufacturing overhead?
a. Factory overhead
b. Pervasive costs
c. Burden
d. Indirect manufacturing costs
149. The product cost that is most difficult to associate with a product is
a. direct materials.
b. direct labor.
c. manufacturing overhead.
d. advertising.
150. Manufacturing costs that cannot be classified as either direct materials or direct labor are known
as
a. period costs.
b. nonmanufacturing costs.
c. selling and administrative expenses.
d. manufacturing overhead.
153. Direct materials and direct labor of a company total $6,000,000. If manufacturing overhead is
$3,000,000, what is direct labor cost?
a. $3,000,000
b. $6,000,000
c. $0
d. Cannot be determined from the information provided
159. For inventoriable costs to become expenses under the matching principle,
a. the product must be finished and in stock.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
176. Which one of the following does not appear on the balance sheet of a manufacturing company?
a. Finished goods inventory
b. Work in process inventory
c. Cost of goods manufactured
d. Raw materials inventory
177. The equivalent of finished goods inventory for a merchandising firm is referred to as
a. purchases.
b. cost of goods purchased.
c. merchandise inventory.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
178. What term describes all activities associated with providing a product or service?
a. The manufacturing chain
b. The product chain
c. The supply chain
d. The value chain
179. How have many companies significantly lowered inventory levels and costs?
a. They use activity-based costing.
b. They utilize an enterprise resource planning system.
c. They have a just-in-time method.
d. They focus on a total quality management system.
180. Which one of the following managerial accounting approaches attempts to allocate manu-
facturing overhead in a more meaningful fashion?
a. Theory of constraints
b. Just-in-time inventory
c. Activity-based costing
d. Total-quality management
181. What is one primary benefit of an enterprise resource planning (ERP) system?
a. It reduces inventory levels.
b. It permits companies to be more streamlined in production.
c. It replaces research and development in a company.
d. It requires an increased emphasis on product quality.
184. Which one of the following characteristics would likely be associated with a just-in-time
inventory method?
a. Ending inventory of work in process that would allow several production runs
b. A backlog of inventory orders not yet shipped
c. Minimal finished goods inventory on hand
d. An understanding with customers that they may come to the showroom and select from
inventory on hand
185. Which one of the following is a cost that would not likely be associated with computer-
integrated manufacturing?
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
186. Which one of the following is an activity not associated with TQM?
a. Tightening the bolts on a chassis so that the frame will not drop out
b. Redesigning the gas tank after fuel efficiency standards are not being met
c. Verifying the 10 check points associated with producing the highest quality loaf of bread
d. Ensuring that the mattress just manufactured meets the standard of comfort of a random
factory line worker
188. Some companies implement systems to reduce defects in finished products with the goal of
achieving zero defects. What are these systems called?
a. Activity-based costing systems
b. Enterprise resource planning systems
c. Value chain systems
d. Total quality management systems
189. Many companies now manufacture products that are untouched by human hands. What do they
use to achieve this?
a. Activity-based costing
b. Computer-integrated manufacturing
c. Enterprise resource planning systems
d. Total quality management systems
a
190. When a company prepares a worksheet for a manufacturing company, to which column is the
Indirect Labor account extended?
a. To the adjustment columns
b. To the income statement columns
c. To the cost of goods manufactured columns
d. To the balance sheet columns
a
191. When a worksheet is prepared for a manufacturing company, an offsetting entry must be made
to balance the cost of goods manufactured columns. Where does the offsetting entry appear?
a. In the balance sheet debit column
b. In the income statement debit column
c. In the balance sheet credit column
d. In the income statement credit column
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
a
192. Which one of the following accounts would not appear in the cost of goods manufactured
columns of a worksheet?
a. Ending Work in Process Inventory
b. Ending Finished Goods Inventory
c. Raw Materials Inventory
d. Direct Labor
a
193. When making closing entries for a manufacturing company, to which account do all accounts
that appear on the cost of goods manufactured schedule get closed?
a. Income Summary
b. Materials, Labor, and Overhead
c. Manufacturing Summary
d. Finished Goods Inventory
195. The function that pertains to keeping the activities of the enterprise on track is
a. planning.
b. directing.
c. controlling.
d. accounting.
197. For a manufacturing company, which of the following is an example of a period cost rather than
a product cost?
a. Depreciation on factory equipment
b. Wages of salespersons
c. Wages of machine operators
d. Insurance on factory equipment
198. For a manufacturing firm, cost of goods available for sale is computed by adding the beginning
finished goods inventory to
a. cost of goods purchased.
b. cost of goods manufactured.
c. net purchases.
d. total manufacturing costs.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
199. If the cost of goods manufactured is less than the cost of goods sold, which of the following is
correct?
a. Finished Goods Inventory has increased.
b. Work in Process Inventory has increased.
c. Finished Goods Inventory has decreased.
d. Work in Process Inventory has decreased.
200. The principal difference between a merchandising and a manufacturing income statement is the
a. cost of goods sold section.
b. extraordinary item section.
c. operating expense section.
d. revenue section.
201. If the total manufacturing costs are greater than the cost of goods manufactured, which of the
following is correct?
a. Work in Process Inventory has increased.
b. Finished Goods Inventory has increased.
c. Work in Process Inventory has decreased.
d. Finished Goods Inventory has decreased.
202. The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred is
the
a. cost of goods manufactured.
b. total manufacturing overhead.
c. total manufacturing costs.
d. total cost of work in process.
203. The inventory accounts that show the cost of completed goods on hand and the costs applicable
to production that is only partially completed are, respectively
a. Work in Process Inventory and Raw Materials Inventory.
b. Finished Goods Inventory and Raw Materials Inventory.
c. Finished Goods Inventory and Work in Process Inventory.
d. Raw Materials Inventory and Work in Process Inventory.
205. Goalpost quality conformance differs from the absolute quality conformance like:
a. “generally” differs from “always”
b. “ranges” differs from “point”
c. “probable” differs from “certain”
d. “many” differs from “one”
c. An upstream cost
d. A downstream cost
209. Appraisal costs are incurred to measure and analyze data to test the product or service in conformity
to specifications, but not to:
a. Reduce error or prevent occurrence of error
b. Change procedures
c. Change policy
d. Check on quality standard
210. The key difference(S) between internal failure cost and external failure cost is (are)
a. When the cost happens
b. Where the cost happens
c. Both when and where the cost happens
d. Whether the cost happens
211. which one of the following is not listed as a practice that successful TQM firms use to ensure
having quality suppliers?
a. Forming long term relationships with suppliers as working partners
b. Setting measures that truly reflects the needs and expectations of the supplier
c. Reducing the suppliers base
d. Selecting the suppliers based on their capability and willingness to improve the quality,
cost, delivery, flexibility, and for their dedication to continuous improvement
212. Conformance to the quality specificatons expressed as specified range around a target is
a. Endzone conformance
b. Target conformance
c. Goalpost conformance
d. Absolute quality conformance
213. conformance that requires all the product or services to meet exactly the target value with no
variation allowed is
a. Endzone conformance
b. Target conformance
c. Goalpost conformance
d. Absolute quality conformance
215. demand pull system in which each component in a production line is produced immediately as
needed by the next step in the production line is referred to as
a. Just in time purchasing
b. Materials requirements planning
c. Relevant total costs
d. Economic order quantity
216. all of the following are the potential financial benefits of the just in time purchasing except:
a. lower investment in the inventory
b. Lower investment in plant space in the inventories
c. Reducing the risk of obsolescence
d. Reducing the manufacturing lead time
219. resistance to changing a management accounting and control system can occur for the reasons listed
below except
a. Employees are set in their ways and will act defensively
b. An employee’s compensation and rewards may be altered
c. The balance of power may shift unfavorably for the employee
d. Employees have to wait for a vote of shareholders before a MACS can be changed
220. one common mistake that managers make when changing to a new cost management system is
a. They involve to many in making the change
b. They take too long to implement the change
c. They over-budget for the cost of the change
d. They try to change too many things simultaneously
225. the overall recognition of the importance of the cost relationships among the activities in the value
chain and the process of managing those cost relationships among the activities in the value chain is
called
a. The theory of constraint
b. The value chain
c. Activity based management activities
d. Strategic cost management
228. strategic planning is different from operational planning is that the operational planning:
a. Involves large sum of money
b. Deals with determining production levels for next quarter
c. Involves only large range goals
d. Operational and strategic planning are the same
229. a system being implemented to reduce defects in finished products with the goal of achieving zero
defects refers to:
a. Activity based costing system
b. Enterprise resource planning system
c. Value chain system
d. Total quality management system
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
230. which of the following emerging themes in the cost accounting deals with managers striving to
create an environment which will enable workers to manufacture defects products
a. Customer orientations
b. Global competition
c. Total quality management
d. Advance in information technology
232. a primary objective in measuring productivity is to improve operations either by using fewer inputs
to improve the same output or to produce:
a. More effectively
b. With fewer constraint
c. More output with the same inputs
d. More outputs with more inputs
233. which of the following assesses the productivity efficiency for all inputs combined in order to value
change in productivity?
a. Partial productivity measurement
b. Profile productivity management
c. Profit linked productivity measurement
d. Total productivity measurement
234.a primary objective in measuring productivity is to improve operations either by using fewer inputs
to produce the same output, or to produce:
a. More effectively
b. With fewer constraint
c. More output with the same inputs
d. More outputs with more inputs
235. changes in the productivity of different types of resources are not always:
a. Measurable and observable
b. In the same direction or at an equal pace
c. Unique and differentiated
d. Simultaneous and positive
237. one major problem in measuring productivity in non profit organization is the absence of revenue as
the:
a. Common measure for inputs
b. Common measure for outputs
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
242. focusing on how best in class companies achieve their results is referred to as:
a. Reverse engineering
b. Results benchmarking
c. Process benchmarking
d. Competitive benchmarking
244. which of the following is the correct sequence of the value chain?
a. Design, research and development, production, supply, marketing, customer service,
distribution
b. Research and development, design, supply, production, marketing, distribution, and
customer service
c. Research and development, design, supply, production, marketing, customer service,
distribution
d. Supply, research and development, design, production, marketing, distribution, customer
service
248. cost incurred to improve the product quality by precluding product defects are known as:
a. Internal failure cost
b. External failure cost
c. Appraisal cost
d. Prevention cost
250. if a company has high failure cost, the best course of action reduce total quality costs would be to :
a. Increase prevention cost
b. Increase the costs associated with compliance
c. Increase the cost of non-compliance
d. Increase appraisal cost
252. the quality costs that are incurred to determine whether particular units of product meet quality
standards are:
a. Appraisal costs
b. External failure costs
c. Internal failure costs
d. Prevention costs
254. the costs of reworking the defective units to make them saleable are classified as
a. Appraisal costs
b. External failure costs
c. Internal failure costs
d. Prevention cost
258. which of the following is defining characteristic of the supply chain management?
a. Focuses on the sharing of the information with the suppliers and customers
b. Focuses on redesigning processes
c. Focuses in improving quality
d. Focuses on strategic alliances
259. the process of dividing all potential customers into smaller groups of buyers with distinct needs,
characteristics, or behavior who might require a similar product or service mix, is called
a. Strategic planning
b. Product positioning
c. Market segmentation
d. Objective setting
260. JIT is a system that seeks improvement by reducing inventories to the absolute minimum levels
possible. It means that
a. Raw materials are purchased just in time to go into the production
b. Sub-assemblies or component parts are completed just in time the materials needed are
purchased
c. Products are completed just in time an order is received from customers
d. None of the above
262. Inventory holding costs would typically include all of the following except:
A. insurance.
B. theft.
C. transportation.
D. obsolescence.
E. warehouse rent.
264. When comparing EOQ and JIT inventory systems, which of the following statements is false?
A. The EOQ approach takes the viewpoint that some inventory is necessary.
B. The EOQ system assumes a constant order quantity.
C. JIT argues that inventory investments should be minimized.
D. The EOQ system focuses on acquisition and holding costs.
E. JIT argues that safety stocks are necessary to reduce the probability of a stock shortage.
265. in JIT, the flow of goods is controlled by a “Pull approach”. It means that
a. work is initiated only in response to customers order
b. Customers are pulled to buy more units to reduce the company’s inventory
c. Production supervisors see to it that there is always something to do to keep everyone busy.
d. Warehouses should always be full to be sure that customer demands are always met.
a. WIP inventories are maximized in order to ensure that all workstations have enough work to
stay busy
b. The plant floor is laid out in a functional format with similar machines grouped together
c. Focused factories are used
d. The plant floors laid out in a single flow line through which all products passes
269. Companies adopt JIT purchasing system to reduce carrying costs by eliminating inventories and
increasing the deliveries made by suppliers. Hence, companies that adopt the system often experience
a. Less need for linkage with the suppliers’ computerized order entry system
b. Fewer deliveries from suppliers
c. A decrease in the number of suppliers
d. A greater need for inspection of goods as the goods are received
270. Which of the following is among the benefits of adopting JIT system
a. Reduction in the number of deliveries of materials
b. Increase in the number of suppliers
c. Performance of non-value added activities
d. Maximization of standard delivery quality
271. a company switched from the traditional to JIT system, the change will
a. Decrease the company’s inventory as a percentage of the total assets
b. Decrease in the company’s inventory turn over
c. Increase the company’s inventory as a percentage of total assets
d. Not affect the company’s turn over and its inventory as a percentage of total assets
273. Ideally, the number of units that should be produced in a just in time manufacturing system is equal
to
a. The maximum productive capacity for the current period
b. Actual customer demand for the current period
c. Budgeted customer demand for the current period
d. Budgeted customer demand for the following period
274. it is an approach to continuous improvement that focuses on serving customers and uses front line
workers to identify and solve problems systematically
a. Total quantity management
b. JIT system
c. Total quality management
d. ABC system
276. costs incurred on quality related processes to prevent defects, or are incurred as a result of defects
occurring
a. Standard cost
b. Quality costs
c. Cost of scrap
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
d. Wastage
277. These costs are incurred to keep the defective products from falling into the hands of the customers,
are composed of
a. Prevention and appraisal costs
b. Failure cost
c. Quality cost
d. Appraisal and inspection cost
.
279. Nonconformance costs are composed of the following
a. Prevention and appraisal cost
b. Internal and external failure cost
c. Costs of technical support
d. Cost of testing
Questions 197 to 204 are based on the following choices: (Matching Type)
Identity the following by their type of quality cost.
a. Preventive costs
b. Appraisal costs
c. Internal failure costs
d. External failure costs
1. Scrap
Internal Failure Costs
2. Recalls
External Failure Costs
3. Warranty work
External Failure Costs
4. Testing
Appraisal Costs
5. Vendor quality
Preventive Costs
6. Returned merchandise
External Failure Costs
8. Operator training
Preventive Costs
9. The just-in-time (JIT) philosophy attempts to reduce setup times, which will:
a. increase batch sizes
b. not affect batch sizes
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
14. Set up time is disregarded as an improvement priority under the ____ manufacturing
concept.
a. Traditional
b. Just in Time
16. ____ manufacturing deals with several suppliers in hopes of finding the better price.
a. Traditional
b. Just-In-Time
21. The Just-In-Time concept emphasizes the product-oriented layout in the manufacturing
area. All the following are benefits on this concept except
a. Reduction of material movement
b. Production process are grouped together
c. Work-in-process inventory is reduced.
d. Production activities are arranged in single cells
22. Under a JIT environment, employees have the responsibility and authority to
a. purchase inventory
b. determine output amounts
c. make decisions about operations, rather than waiting for management.
d. make engineering changes
23. Which of the following drives work in process inventory levels higher?
a. Machine breakdowns
b. Production rate losses
c. Rework processes
d. All of the above
25. In a just-in-time (JIT) environment, process problems are more visible than they are in
a traditional environment because:
a. inventories are maintained at higher levels
b. process problems cause production to shut down immediately
c. the push manufacturing system causes inventories to increase
d. the lack of work in process inventory creates the problems
30. Which of the following is best suited to providing timely and focused performance
information?
a. Nonfinancial information
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
33. The budgeted cell conversion cost rate includes which of the following?
a. factory overhead only
b. direct labor and direct materials only
c. direct labor, direct materials, and factory overhead
d. direct labor and factory overhead only
34. The local college is aggressively working in reducing the time that a student needs to
enroll for each semester. All except one of the following changes is helping in their
efforts.
a. Counselors are specializing in common degree plans.
b. One application is good at the Community college and at the transferring
University.
c. A one stop area includes registration, admissions, advising, and ID’s. Each
working closely with each other.
d. Reduce the number of degrees being offered.
35. The college would like to increase enrollment by following the just-in-time principle by
streamlining the enrollment process. Which of the following would not fall in line with
the college goal?
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
37. All of the following except one are examples of prevention costs
a. preventive maintenance
b. operator training
c. design engineering
d. testing activities
39. Which of the following statements best describes the relationship between costs of
quality?
a. The more that is spent on prevention and appraisal costs, the overall costs of quality
will be reduced
b. The more that is spent on prevention and appraisal costs, the overall costs of quality
will remain the same.
c. Overtime prevention and appraisal costs will eliminate all internal and external costs.
d. Internal and external costs will increase as prevention and appraisal costs increase.
41. Of the following, identify the favorable attributes of the just-in-time manufacturing
system.
(a) having extra inventory to ensure that manufacturing will not run out of direct
materials.
(b) cross training of employees
(c) giving employees additional authority and responsibility.
(d) product oriented layout.
a. A,b,c
b. C,a,d
c. B,c,d
d. A,b,d
70. Which of the following is necessary for any valid performance measurement?
a. It must be part of the financial accounting system in use.
b. It must be quantifiable.
c. Goal congruence must be promoted by its use.
d. It must be financial in nature.
73. A small manufacturing company recently stated its sales goal for a period was P100,000. At
this level of activity, its budgeted expenses were P80,000. Its actual sales were P100,000,
but its actual expenses were P85,000. This company operated
a. effectively and efficiently. c. effectively but not efficiently.
b. neither effectively nor efficiently. d. efficiently but not effectively.
1. The maintenance cost per roll of 4-inch insulation before JIT is installed would be
a. P24.00 c. P14.00
b. P17.50 d. P13.16
SUPPORTING ANALYSIS/COMPUTATION:
Maintenance cost per MH: (P840,000 ÷ 24,000) P25
Maintenance cost per roll, 4-Inch (6,000 x P35 ÷ 15,000) P14
2. The maintenance cost per roll of 9-inch insulation before JIT is installed would be
a. P17.50 c. P28.57
b. P25.00 d. P75.00
SUPPORTING ANALYSIS/COMPUTATION:
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
3. The product cell for Crane Company has budgeted conversion costs of P420,000 for
the year. The cell is planned to be available 2,100 hours for production. Each unit
requires P12.50 of materials costs. The cell started and completed 700 units. The cell
process time for the product is 15 minutes per unit.
What is the total product cost for the period?
a. P35,000 c. P40,000
b. P38,750 d. P43,750
SUPPORTING ANALYSIS/COMPUTATION:
Materials cost (700 x P12.50) P 8,750
Conversion costs (700 x 0.25 x P200) 35,000
Total P43,750
SUPPORTING ANALYSIS/COMPUTATION:
Value-added labor:
Assemblers 7 personnel
Fabricators 3 personnel
Total 10 personnel
Value-added activity ratio: (10 ÷ 16) 5/8 or 62.5%
SUPPORTING ANALYSIS/COMPUTATION:
Theoretical velocity = Theoretical capacity ÷ Available hours
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
SUPPORTING ANALYSIS/COMPUTATION:
Actual Velocity: Actual Production ÷ Available Hours
(2,000 ÷ 800) = 2.5 units per hour
SHORT PROBLEMS:
PROBLEM 1:
Kaya pa ba Corporation manufactures filing cabinets in two operations machining and finishing. It
provides the following information.
Machining Finishing
Annual capacity 100000units 80000 units
Annual Production 80000 units 80000units
Fixed Operating Cost(excluding
direct materials) P 6400000 P4000000
Fixed Operating Cost per Unit produced 80 per unit 50 per unit
Each cabinet sells for P720 and has direct materials costs of P320 incurred at the start of the machining
operation. Kaya pa ba has no other variable costs. Kaya pa ba can sell whatever output it produces. The
following requirements refer only to the preceding data. There is no connection between the
requirements.
Required:
1. Kaya pa ba is considering using some modern jigs and tools in the finishing operation
that would increase annual finishing output by 1,000 units. The annual cost of these jigs
and tool is P300,000. Should Kaya pa ba acquire these tools?
2. The production manager of the machining department has submitted a proposal to do faster
setups that would increase the annual capacity of the machining department by 10,000 units and
costs 50,000 per year. Should Kaya pa ba implement the change?
SUPPORTING ANALYSIS
Requirement 1
Finishing is a bottleneck operation. Hence, producing 1,000 more units will generate additional
throughput contribution and operating income.
Kaya pa ba should invest in the modern jigs and tools because the benefit of higher throughput
contribution of P40,000 exceeds the cost of P30,000.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
Requirement 2
The Machining Department has excess capacity and is not a bottleneck operation. Increasing its
capacity further will not increase throughput contribution. There is, therefore, no benefit from
spending P5,000 to increase the Machining Department’s capacity by 10,000 units. Kaya pa ba
should not implement the change to do setups faster.
PROBLEM 2:
Refer to the information in problem above in answering the following requirements. There is no
connection between the requirements.
REQUIRED:
1. An outside contractor offers to do the finishing operation for 12,000 units at P100 per
unit, double the 50 per unit that it costs Kaya pa ba to do the finishing in-house. Should
Kaya pa ba accept the subcontractor’s offer?
2. The Rainee Corporation offers to machine 4000 units at 40 per unit, half of the 80 per unit that it
costs Kaya pa ba to do the machine in-house. Should Kaya pa ba accept the subcontractor’s
offer?
SUPPORTING ANALYSIS
Requirement 1
Finishing is a bottleneck operation. Hence, getting an outside contractor to produce 12,000 units
will increase throughput contribution.
Kaya pa ba should contract with an outside contractor to do 12,000 units of finishing at P10 per
unit because the benefit of higher throughput contribution of P480,000 exceeds the cost of
P120,000. The fact that the costs of P10 are double Kaya pa ba finishing cost of P5 per unit are
irrelevant.
Requirement 2
Operating costs in the Machining Department of P640,00, or P8 per unit, are fixed costs. Kaya
pa ba will not save any of these costs by subcontracting machining of 4,000 units to Rainee
Corporation. Total costs will be greater by P16,000 (P4 per unit x 4,000 units) under the
subcontracting alternative. Machining more filing cabinets will not increase throughput
contribution, which is constrained by the finishing capacity. Kaya pa ba should not accept
Rainee’s offer. The fact that Rainee’s costs of machining per unit are half of what it costs Kaya
pa ba in-house is irrelevant.
PROBLEM 3:
Refer to the information in last problem3 in answering the following requirements. There is no
connection between the requirements.
REQUIRED:
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
1. Kaya pa ba produces 2,000 defective units at the machining operation. What is the cost
to Kaya pa ba of the defective items produce? Explain your answer.
2. Kaya pa ba produces 2,000 defective units at the finishing operation. What is the costs to Kaya
pa ba of the defective items produced? Explain your answer.
SUPPORTING ANALYSIS
Requirement 1
Cost of defective unit at machining operation which is not a bottleneck operation is the loss in
direct materials (variable costs) of P32 per unit. Producing 2,000 units of defectives does not
result in loss of throughput contribution. Despite the defective production, machining can
produce and transfer 80,000 units to finishing. Therefore, cost of 2,000 defective units at the
machining operation is P32 x 2,000 = P64,000.
Requirement 2
A defective unit produced at the bottleneck finishing operation costs Zashi materials costs plus
the opportunity cost of lost throughput contribution. Bottleneck capacity not wasted in
producing defective units could be used to generate additional sales and throughput contribution.
Cost of 2,000 defective units at the finishing operation is:
Alternatively, the cost of 2,000 defective units at the finishing operation can be calculated as the
lost revenue of P72 x 2,000 = P144,000. This line of reasoning takes the position that direct
materials costs of P32 x 2,000 = P64,000 and all fixed operating costs in the machining and
finishing operations would be incurred anyway whether a defective or good unit is produced.
The cost of producing a defective unit is the revenue lost of P144,000.
PROBLEM 4:
The Adoracion Company incurred these cost of quality
2018 2019
Calibration P75000 P100000
Product design 150000 175000
Product liability 125000 75000
Product recalls 400000 200000
Retesting 250000 200000
Rework 325000 100000
Testing 50000 150000
Training 75000 100000
Warranty repairs 150000 75000
Required:
1. Prepare cost of quality report that classifies each of the cost under the proper cost of
quality.
2. Indicate whether the costs are increasing or decreasing and by how much?
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
SUPPORTING ANALYSIS
Increase
Costs Categories 2005 2006 (Decrease)
Prevention costs:
Training P 75,000 P 100,000 P25,000
Product design 150,000 175,000 25,000
Total prevention 225,000 275,000 50,000
Appraisal costs:
Testing 50,000 150,000 100,000
Calibration 75,000 100,000 25,000
Total appraisal 125,000 250,000 125,000
PROBLEM 5:
PROBLEM 6:
COMPREHENSIVE PROBLEMS:
PROBLEM1:
The Besty Corp. manufactures and sells 3,000 premium quality multimedia projectors at P12,000 per
unit each year. At the current production level, the firms manufacturing cost include variable costs of
P2500 per unit and annual fixed cost of P6,000,000. Additional selling administrative, and other
expenses, not including 15 percent sales commissions, are P10,000,000 per year.
The new model, introduced a year ago, has experienced a flickering problem. On average the firm has to
rework 40 percent of the completed units. The firm still has to repair under warranty 15 percent of the
units shipped. The additional work required for rework and repair makes it necessary for the firm to add
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
additional capacity with annual fixed costs of P1,800,000. The variable costs per unit are P2,000 for
rework and P2,500, including transportation cost for repair.
The chief engineer, Beast has proposed a modified manufacturing process that will almost eliminate the
flickering problem. The new process will require P12,000,000 for new equipment and installation, and
P3,000,000 for training. Beast believes that current appraisal costs of P600,000 per year and P50 per unit
can be eliminated within one year after the installation of the new process. The firm currently inspects all
the units before shipment. Furthermore, warranty repair cost will be only P1,000 for no more than 5
percent of the units shipped.
Besty believes that none of the fixed costs of rework or repair can be saved and that a new model will be
introduced in three years. The new technology will most likely render the current equipment obsolete.
Requirement:
1. What are the additional cost of choosing the new process?
2. What are the benefits of choosing the new process?
3. Should jimmy use the new process?
4. What factors should be considered before making the final decisions?
5. A member of the board is very concerned about the substantial amount of additional funds
needed for the new process. Because the current model will be replaced in the about three years,
the board members suggests that the firm should take no action and the problem will go away in
three years. Do you agree?
SUPPORTING ANALYSIS:
Requirement 1
Cost of new equipment and installation P12,000,000
Training 3,000,000
Total additional cost of the new process P15,000,000
Requirement 2
Quality cost if no change is made:
Requirement 3
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
Yes. The cost of the new process is P15,000,000 and the expected benefits is P28,837,500 over
three years. The firm can expect to earn a return of over 90%.
Requirement 4
The following factors should be considered before making the final decision:
b. Reliability of estimations of
Rates of rework and repair
Lost sales
Amount of time before the current product become obsolete
c. Reaction of competitors
Requirement 5
The member of the board would be right if we ignore the financial payoff of the new process and
if the firm is going to be in business for only three years. Having high quality products,
especially for a high-end product such as the one the firm is selling, is crucial for a long term
success.
PROBLEM 2:
Canada industry manufactures two types of refrigerators, Victoria and Vancouver. Information on each
refrigerator is as follows.
VICTORIA VANCOUVER
Units manufactured and sold 10000 units 5000 units
Selling price P2000 P1500
Variable costs per unit 1200 800
Hours spent on design 6000 1000
Testing and inspection hours per unit 1 0.5
Percentage of units reworked in plant 5% 10%
Rework costs per refrigerator 500 400
Percentage of unit repaired at customer site 4% 8%
Repair cost per refrigerator 600 450
Estimated lost sales from poor quality - 300UNITS
The labor rates per hour for various activities are as follows.
Design P75 per hour
Testing and inspection P40 per hour
Required:
1. Calculate the cost of quality for Victoria.
2. Calculate the costs of quality for Vancouver.
3. Classified into prevention, appraisal, internal failure and external failure categories.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
4. For each type of refrigerator, calculate the ratio of each COQ category as a percentage of
revenues.
5. Compare and comment on the cost of quality for Victoria and Vancouver
6. Give two examples of nonfinancial quality measures that Canada industry could monitor as
part of a total quality control effort.
SUPPORTING ANALYSIS:
PROBLEM 3:
The management of Boogie Company thinks that total costs of quality can be reduced by increasing
expenditure in certain key costs of quality categories. The following costs of quality have been identified
by management.
Required
1. Classify these costs into the four costs of quality categories.
2. Determine the total pesos being spent on each of the categories.
3. Based on the company’s expenditures by cost of quality categories, on which costs category
should the company concentrate its efforts to which cost category should the company
concentrate its efforts to decrease its overall cost of quality.
SUPPORTING ANALYSIS:
Requirement 1
Internal External
Costs of Quality Prevention Appraisal Failure Failure
Rework P 6,000
Recalls P15,000
Reengineering efforts P 9,000
Repair 12,000
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
Replacements 12,000
Retesting 5,000
Supervision P18,000
Scrap 9,000
Training 15,000
Testing of incoming
materials 7,000
Inspection of work in
process 18,000
Downtime 10,000
Product liability insurance 9,000
Quality audits 5,000
Continuous improvement 1,000
Warranty repairs 15,000
Requirement 2
Total spent by
category P25,000 P48,000 P42,000 P51,000
Requirement 3
The company is currently spending the least on preventive costs. They should concentrate their
efforts on preventive costs because they prevent poor quality products from being manufactured.
By increasing amount spent on prevention, they could reduce spending on the other cost of
quality categories.
PROBLEM 4:
The Bali Company manufactures custom-designed milling machines and incurred the following cost of
equity in 2018 and 2019:
2019 2018
Rework P200000 P250000
Quality Manual 40000 50000
Product design 300000 270000
Testing 80000 60000
Retesting 50000 90000
Product recalls 360000 500000
Field services 230000 350000
Disposal of defective units 90000 85000
The total sales in each of the two years were P6 000 000. The firm’s cost of goods sold is typically one-
third of the net sales.
Required:
1. Prepare a cost-of-quality report that classifies the firm’s costs under the proper cost-
quality category.
2. Calculate the ratio of each cost-of-quality category to sales in each of the two years. Comment
on the trends in cost of quality between 2018 and 2019.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
3. Give six examples of non-financial measures that Bali might want to monitor as part of a total
quality management effort.
SUPPORTING ANALYSIS:
Requirements 1 & 2
Bali Company
Cost of Quality Report
For 2005 and 2006
Requirement 3
It should be noted that nonfinancial measures by themselves often have limited meaning.
Nonfinancial measures are more informative when trends of the same measure over time are
examined.
PROBLEM 5:
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
CASE STUDY:
CS1:
DI NA MULI Industries manufactures electronic testing equipment. DI NA MULI also installs the
equipment at customer’s sites and ensures that it functions smoothly. Additional information on the
Manufacturing and installation departments is as follows (capacities are expressed in terms of the
number units of electronic testing equipment):
DI NA MULI manufactures only 300 units per year because the installation Department has only enough
space to install 300 units. The equipment sells for P40,000 per unit (installed) and has direct materials
costs of P15,000. All costs other than direct materials costs are fixed.
REQUIREMENTS:
1. DI NA MULI is considering hot to motivate workers to improve their productivity(output
per hour). One proposal is to evaluate and compensate workers in the Manufacturing and
installation departments on the basis of their productivities. Is the new proposal a good idea?
2. DI NA MULI’s engineers have found a way to reduce equipment
manufacturing time. The new method would cost an additional P50 per unit and would
allow DI NA MULI to manufacture 20 additional units a year. Should DI NA MULI
implement the new method?
3. A new installation technique has been developed that will enable DI NA MULI’s engineers
to install 10 additional units of equipment a year. The new method will increase installation
costs by P50000 each year. Should DI NA MULI implement the new technique?
4. DI NA MULI’s designers have proposed a changed in direct
materials that would increase direct materials costs by P2000 per unit. This change would
enable DI NA MULI to install 320 units of equipment per year. If Columbia makes the
change, it will implement the new design on all equipment sold. Should DI NA MULI use
the new design?
SUPPORTING ANALYSIS:
1. Motivating installation workers to increase productivity is worthwhile because
installation is bottleneck operation, and any increase in productivity at the bottleneck
will increase throughput contribution. On the other hand, motivating workers in the
manufacturing department to increase productivity is not worthwhile. Manufacturing is
not a bottleneck operation, so any increase in output will result only in extra inventory of
equipment. Columbia Industries should encourage manufacturing to produce only as
much equipment as the installation department needs, not to produce as much as it can.
Under these circumstances, it would not be a good idea to evaluate and compensate
manufacturing workers on the basis of their productivity.
2. It will cost DI NA MULI P50 per unit to reduce manufacturing time. But manufacturing
time more equipment will not increase sales and throughput contribution. DI NA MULI
Industry should not implement the new manufacturing method.
3. Increase in throughput contribution, P25000*10units P250000
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING ENVIRONMENT
The additional incremental cost exceed the benefit from higher throughput contribution
by P140000, s DI NA MULI Industry should not implement the new design.
The current throughput contribution is greater than the throughput contribution resulting
from the proposed change in direct materials. Hence, DI NA MULI Industries should
not implement the new design
CS2:
REFERENCES:
https://www.coursehero.com/search/results/193629894/e4517111e1932b3432/
Management Advisory Services CPA Reviewer by Cabrera
Management Advisory Services CPA Reviewer by Agamata
Management Advisory Services CPA Reviewer by Roque
Management Advisory Services CPA Reviewer by Bobadilla
www.scribd.com
www.quizlet.com