Chapter 26 Managing Accounting in A Changing Environment: Essay

CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
ENVIRONMENT
ESSAY:
1. What roles do management accountants play in TQM?

The role of management accountants in total quality management includes
gathering all relevant quality information, participating actively in all phases
of the quality program, and reviewing and disseminating quality cost reports.
2. How can management accountants meet the challenges of TQM?

To meet the challenges of total quality management, management
accountants need to have a clear understanding of TQM methodology. They
must be able to design, create, or modify information systems that measure
and monitor quality and evaluate progress toward total quality as expected
of each organizational unit and the total enterprise.
3. Describe JIT purchasing and its benefit.

Just-in-time (JIT) purchasing is the purchase of goods or materials such that a
delivery immediately precedes demand or use. Benefits include lower
inventory holdings (reduced warehouse space required and less money tied
up in inventory) and less risk of inventory obsolescence and spoilage.
4. What are the core principles of total quality management?

The core principles of TQM include (1) focusing on satisfying the customer,
(2) striving for continuous improvement, and (3) involving the entire work
force.
5. Why is continuous quality improvement essential to achieve TQM and critical

to an organization’s success and competitive position?
Continuous improvement (Kaizen) in total quality management is the belief
that quality is not a destination; rather, it is a way of life and firms need to
continuously strive for better products with lower costs.
In today’s global competition, where firms are forever trying to outperform
the competition and customers present ever-changing expectations, a firm
can never reach the ideal quality standard and needs to continuously
improve quality and reduce costs to remain competitive.
6. What is cost of conformance?

Costs of conformance are costs incurred to ensure that products or services
meet quality standards and include prevention costs and appraisal costs.
7. What is cost of Nonconformance?

Internal and external failure costs are costs of non-conformance. They are
costs incurred or opportunity costs because of rejection of products or
services.
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
ENVIRONMENT
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.
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.”
10.What is TQM?
Procter & Gamble defines TQM as “the unyielding and continually improving
effort by everyone in an organization to understand, meet, and exceed the
expectations of customers.” Typical characteristics of TQM include focusing
on satisfying customers, striving for continuous improvement, and involving
the entire workforce.
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.
12.Describe the 3 main measures used in the theory of accounts.

The three main measures used in the theory of constraints are:
i. Throughput contribution equal to sales revenue minus direct materials
costs.
ii. Investments (inventory) equal to the sum of materials costs of direct
materials inventory, work-in-process inventory and finished goods
inventory, research and development costs, and costs of equipment and
buildings.
iii. Other operating costs equal to all operating costs (other than direct
materials) incurred to earn throughput contribution.
13.Describe the four key steps in managing bottleneck operations.

The four key steps in managing bottleneck resources are:
Step 1: Recognize that the bottleneck operation determines throughput
contribution.
Step 2: Search for, and find the bottleneck.
Step 3: Keep the bottleneck busy, and subordinate all non-bottleneck
operations to the bottleneck operation.
Step 4: Increase bottleneck efficiency and capacity.
ENVIRONMENT
14.What are the purposes of conducting a quality audit?

The purposes of conducting a quality audit are to identify strengths and
weaknesses in quality practices and levels of a firm’s quality and to help the
firm identify the target areas for quality improvements.
15.What is gap analysis?

A gap analysis is a type of benchmarking that includes analyzing the
differences in practices between the firm and the best-in-class. The
objective of gap analyses is to identify strengths, weaknesses, and target
areas for quality improvement.
16.Describe the processes for an effective implementation of TQM.

The Institute of Management Accountants (IMA) believes an effective
implementation of total quality management will take between three and
five years and involves the following tasks:
Year 1
a. Create a quality council and staff
b. Conduct executive quality training programs
c. Conduct quality audits
d. Prepare gap analysis
e. Develop strategic quality improvement plans
Year 2
a. Conduct employee communication and training programs
b. Establish quality teams
c. Create measurement systems and set goals
Year 3
a. Revise compensation / appraisal / recognition systems
b. Launch external initiatives with suppliers
c. Review and revise
17.What are the main features in a JIT production system?

Just-in-time (JIT) production is a “demand-pull” manufacturing system that
has the following features:
a. Organize production in manufacturing cells,
b. Hire and retain workers who are multi-skilled,
c. Aggressively pursue total quality management (TQM) to eliminate
defects,
d. Place emphasis on reducing both setup time and manufacturing lead
time, and
e. Carefully select suppliers who are capable of delivering quality
materials in a timely manner.
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
ENVIRONMENT
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.
20.What is reengineering?
Reengineering is the fundamental rethinking and redesign of business
processes to achieve improvements in critical measures of performance such
as cost, quality, service, speed, and customer satisfaction.
MULTIPE CHOICE: THEORIES
1.Which of the following statements about managerial accountants is false?

A. Managerial accountants more and more are considered "business
partners."
B. Managerial accountants often are part of cross-functional teams.
C. An increasing number of organizations are segregating managerial
accountants in separate managerial-accounting departments.
D. In a number of companies, managerial accountants make significant
business decisions and resolve operating problems.
E. The role of managerial accountants has changed considerably over the
past decade.
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.
ENVIRONMENT
E. Budgeting.
4. Which of the following managerial functions involves a detailed financial and

operational description of anticipated operations?
A. Decision making.
B. Planning.
D. Controlling.
E. Measuring.
ENVIRONMENT
5. Which of the following involves the coordination of daily business functions

within an organization?
A. Decision making.
B. Planning.
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.
7. Which of the following is not an objective of managerial accounting?

A. Providing information for decision making and planning.
B. Assisting in directing and controlling operations.
C. Maximizing profits and minimizing costs.
D. Measuring the performance of managers and subunits.
E. Motivating managers toward the organization's goals.
8. The role of managerial accounting information in assisting management is

a(n):
A. financial-directing role.
B. attention-directing role.
C. planning and controlling role.
D. organizational role.
E. problem-solving role.
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.
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).
12. Which of the following perspectives is normally absent in a balanced

scorecard?
A. Financial.
B. Customer.
C. Internal operations.
D. Learning and innovation/growth.
E. None of the above.
13. Managerial accounting:

A. focuses only on historical data.
B. is governed by GAAP.
C. focuses primarily on the needs of personnel within the organization.
D. provides information for parties external to the organization.
E. focuses on financial statements and other financial reports.
14. Managerial accounting:

A. is unregulated.
B. produces information that is useful only for manufacturing organizations.
C. is based exclusively on historical data.
D. is regulated by the Securities and Exchange Commission (SEC).
E. generally focuses on reporting information about the enterprise in its
entirety rather than by subunits.
ENVIRONMENT
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
of Microsoft State
America University
A. Yes Yes No
B. Yes No Yes
C. Yes Yes Yes
D. No Yes No
E. No Yes Yes
18. Financial accounting focuses primarily on reporting:

A. to parties outside of an organization.
B. to parties within an organization.
C. to an organization's board of directors.
D. to financial institutions.
E. for financial institutions.
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?
ENVIRONMENT
A. Pilot.
B. Chief financial officer (CFO).
C. Flight attendant.
D. Ticket agent.
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.
23. The chief managerial and financial accountant of an organization is the:

A. chief executive officer (CEO).
B. treasurer.
C. vice-president of accounting.
D. internal auditor.
E. chief financial officer (CFO).
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.
25. A controller is normally involved with:

A. preparing financial statements.
B. managing investments.
C. raising capital.
D. safeguarding assets.
E. managing the firm's credit policy.
ENVIRONMENT
26. Which of the following is not a function of the treasurer?

A. Safeguarding assets.
B. Managing investments.
C. Preparing financial statements.
D. Being responsible for an entity's credit policy.
E. Raising capital.
27. Managerial accountants:

A. often work on cross-functional teams.
B. are located throughout an organization.
C. are found throughout an organization and work on cross-functional
teams.
D. are found primarily at lower levels of the organizational hierarchy.
E. are found primarily at higher levels of the organizational hierarchy.
28. The two dimensions of managerial accounting are:

A. a decision-facilitating dimension and a decision-influencing dimension.
B. a decision-facilitating dimension and a financial-influencing dimension.
C. a decision-influencing dimension and a cost-minimizing dimension.
D. a cost-minimizing dimension and a profit-maximizing dimension.
E. a decision-influencing dimension and a profit-maximizing dimension.
29. Much of managerial accounting information is based on:

A. a cost-benefit theme.
B. profit maximization.
C. cost minimization.
D. the generation of external information.
E. effectiveness but not efficiency.
30. Which of the following is not normally considered to be an

element of e-business?
A. E-budgeting.
B. Supply-chain management.
C. E-commerce.
D. Balanced scorecards.
E. Choices "B" and "D" above.
31. Managerial accounting has changed in recent years because of:

A. the growth of e-business.
B. increased global competition.
C. the emergence of new industries.
D. an increased focus on the customer.
E. all of the above factors.
32. Managerial accounting has changed in recent years because of:

ENVIRONMENT
A. a growing service economy in the United States.

B. the growing popularity of cross-functional teams.
C. computer-integrated manufacturing (CIM).
D. time-based competition.
E. all of the above factors.
33. Which of the following statement(s) about just-in-time (JIT) inventory

management is (are) true?
I The emphasis of JIT is on "pull" manufacturing.

II Raw materials are purchased just in time to be used in production.
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.
35. Cost management systems tend to focus on an organization's:

A. machines.
B. employees.
C. activities.
D. customers.
E. rules and regulations.
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
ENVIRONMENT
included in a manufacturer's value chain?

Research
and Marketing Distributio
Developm n
ent
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.
D Distributing goods from regional warehouses to local stores.
E All of the above activities would be an element in the company’s value
chain.
39. The activities performed by a manufacturing organization could be

categorized as pre-production (such as research and development and
product design), production-related, and post-production (such as marketing
and customer service). Which activities should the firm focus on if
management understands the value chain concept and desires to meet
organizational goals?
A. Pre-production activities.
B. Production-related activities.
C. Post-production activities.
D. Pre-production, production-related, and post-production activities.
E. Pre-production and production-related activities.
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.
ENVIRONMENT
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.
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.
45Which 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.
46. Which of the following is not an ethical standard of managerial accounting?

A. Competence.
B. Confidentiality.
C. Efficiency.
D. Integrity.
E. Credibility.
ENVIRONMENT
47. Which of the following is not an element of competency?

A. To develop appropriate knowledge about a particular subject.
B. To perform duties in accordance with relevant laws.
C. To perform duties in accordance with relevant technical standards.
D. To refrain from engaging in an activity that would discredit the
accounting profession.
E. To prepare clear reports after an analysis of relevant and reliable
information.
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.
49. The major users of accounting information are

a. external parties for making decisions about the company
b. internal managers for planning and control purposes
c. internal managers for nonroutine decisions
d. all of the above
50. Good accounting information helps an organization by:

a. accumulating and classifying data.
b. determining who should be fired and when.
c. directing management's attention.
d. helping to solve problems.
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
53. Which of the following is NOT and example of a special report?

a. cash flow report
b. customer survey
ENVIRONMENT
c. competitor analysis
d. advertising impact analysis
54.The process of setting goals is called:

a. controlling
b. managing
c. planning
d. none of the above
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
56. In the value-chain, accounting is in the _____ function:

a. research and development
b. design
c c. support
d d. customer service
e. distribution
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
58. The treasurer function includes:

a. tax administration
b. evaluating and consulting
c. investor relations
d. economic appraisal
60. Trends that are causing changes in management accounting today include:
a advances in technology
b. increased global competition
c 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
ENVIRONMENT
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
63. Managerial accounting places considerable weight on:

A) generally accepted accounting principles.
B) the financial history of the entity.
C) ensuring that all transactions are properly recorded.
D) detailed segment reports about departments, products, and customers.
64. The plans of management are often expressed formally in:

A) financial statements.
B) performance reports.
C) budgets.
D) ledgers.
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.
66. A staff position:

A) relates directly to the carrying out of the basic objectives of the
organization.
B) is supportive in nature, providing service and assistance to other parts of
the organization.
C) is superior in authority to a line position.
D) none of these.
68. For a manufacturing company, what type of position (line or staff) is

each of the following?
Manager of a Data Manager of a

Processing Department Production
ENVIRONMENT
Department
A) Staff Staff
B) Staff Line
C) Line Staff
D
) Line Line
69. A _______________ position in an organization is directly related to the

achievement of the organization's basic objectives.
A) line
B) management
C) staff
D) None of the above.
70. ______________ is an example of a line position.

A) Controller for a merchandising company
B) Chief financial officer of a merchandising company
C) Store manager for Best Buy
D) Human resources manager for a community college
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 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.
ENVIRONMENT
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
ENVIRONMENT
79. The controller of a company or other organization is

a. a staff manager.
b. an operating manager.
c. an accountant, not a manager.
d. a natural manager.
80. Which item is NOT an IMA Standard for Ethical Conduct?

a. Integrity.
b. Competence.
c. Loyalty.
d. Objectivity.
81. Which statement about the degree of detail in a report is true?

a. It depends on the level of the manager receiving the report.
b. It may depend on the frequency of the report.
c. It depends on the type of manager receiving the report.
d. All of the above.
82. Managerial accounting is similar to financial accounting in that

a. both are governed by generally accepted accounting principles.
b. both deal with economic events.
c. both concentrate on historical costs.
d. both classify reported information in the same way.
83. Managerial accounting differs from financial accounting in that it is

a. more concerned with the future.
b. more concerned with segments of a company.
c. less constrained by rules and regulations.
d. all of the above.
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.
85. Which activity is NOT normally performed by managerial accountants?

a. Assisting managers to interpret data in managerial accounting reports.
b. Designing systems to provide information for internal and external reports.
c. Gathering data from sources other than the accounting system.
d. Deciding the best level of inventory to be maintained.
86. Conventional and just-in-time manufacturers both

a. Maintain large inventories of their products.
b. Sell only to other manufacturing companies.
ENVIRONMENT
c. Desire to meet customers' deadlines.

d. Require about the same amount of space to operate.
87. Classifying costs by behavior is

a. associated primarily with financial accounting.
b. not relevant to a company that has only selling expenses.
c. common in reports prepared for external readers.
d. none of the above.
88. Which is NOT a common accounting classification of costs?

a. By the method of payment for the expenditure.
b. By the objective of expenditure.
c. By behavior.
d. By the function incurring the expenditure.
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.
91. Income statements classifying costs by object show such items as

a. tax expense, wages expense, depreciation expense.
b. cost of goods sold, selling expenses, administrative expenses.
c. assets, liabilities, owners' equity.
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.
93. Which function is most directly related to management by objectives?

a. Planning.
b. Control.
c. Decision making.
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d. Reporting.
94. Which consideration influences the frequency of an internal report?

a. The wishes of the managers receiving the report.
b. The frequency with which decisions are made that require the information in
the report.
c. The cost of preparing the report.
95. A just-in-time manufacturer is more likely than a conventional manufacturer to

a. receive more frequent deliveries of materials.
b. spend less money on advertising.
c. need workers with fewer skills.
96. A conventional manufacturer is more likely than a just-in-time manufacturer to

a. have a short production cycle.
b. produce goods in small batches.
c. hold large inventories to serve as buffers.
d. none of the above.
97. The professional certification most relevant for managerial accountants is the
a. CMA.
b. CPA.
c. CSA.
d. MAS.
98. A firm that is competing using a _______________________ strategy is attempting

to create a perception of uniqueness that will permit a higher selling price.
a. value chain
b. lowest cost
c. lead time
d. differentiation
99. Planning and control are

a. different names for the same thing.
b. the basic functions of management.
c. described equally well by the terms "decision making" and "performance
evaluation."
d. exemplified by, respectively, financial statements and budgeting.
100. In contrast to a balance sheet, an income statement

a. is for a period of time, a balance sheet is at a point in time.
b. gives information about cash and a balance sheet does not.
c. is prepared after the statement of retained earnings.
d. has two columns, while a balance sheet has more than two.
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101. One characteristic of the conventional manufacturing environment is

a. flexible manufacturing systems.
b. manufacturing cells.
c. a just-in-case philosophy.
d. a high degree of quality control.
102. A characteristic of the just-in-time manufacturing environment is

a. frequent deliveries of materials.
b. manufacturing cells.
c. little or no inventory of finished product.
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.
107. Managerial accounting information is generally prepared for

a. stockholders.
b. creditors.
c. managers.
d. regulatory agencies.
108. Managerial accounting information

a. pertains to the entity as a whole and is highly aggregated.
b. pertains to subunits of the entity and may be very detailed.
c. is prepared only once a year.
d. is constrained by the requirements of generally accepted accounting
principles.
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.
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111. Managerial accounting is also called

a. management accounting.
b. controlling.
c. analytical accounting.
d. inside reporting.
112. Which of the following is not an internal user?

a. Creditor
b. Department manager
c. Controller
d. Treasurer
113. Managerial accounting does not encompass

a. calculating product cost.
b. calculating earnings per share.
c. determining cost behavior.
d. profit planning.
114. Managerial accounting is applicable to

a. service entities.
b. manufacturing entities.
c. not-for-profit entities.
d. all of these.
115. Management accountants would not

a. assist in budget planning.
b. prepare reports primarily for external users.
c. determine cost behavior.
d. be concerned with the impact of cost and volume on profits.
116. Internal reports must be communicated

a. daily.
b. monthly.
c. annually.
d. as needed.
117. Financial statements for external users can be described as

a. user-specific.
b. general-purpose.
c. special-purpose.
d. managerial reports.
118. Managerial accounting reports can be described as

a. general-purpose.
b. macro-reports.
c. special-purpose.
d. classified financial statements.
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119. The reporting standard for external financial reports is

a. industry-specific.
b. company-specific.
c. generally accepted accounting principles.
d. department-specific.
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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.
122. Internal reports are generally

a. aggregated.
b. detailed.
c. regulated.
d. unreliable.
123. A distinguishing feature of managerial accounting is

a. external users.
b. general-purpose reports.
c. very detailed reports.
d. quarterly and annual reports.
124. What activities and responsibilities are not associated with management's
functions?
a. Planning
b. Accountability
c. Controlling
d. Directing
125. Planning is a function that involves

a. hiring the right people for a particular job.
b. coordinating the accounting information system.
c. setting goals and objectives for an entity.
d. analyzing financial statements.
126. The managerial function of controlling

a. is performed only by the controller of a company.
b. is only applicable when the company sustains a loss.
c. is concerned mainly with operating a manufacturing segment.
d. includes performance evaluation by management.
127. Which of the following is not a management function?

a. Constraining
b. Planning
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c. Controlling
d. Directing
128. A manager that is establishing objectives is performing which management

function?
a. Controlling
b. Directing
c. Planning
d. Constraining
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.
131. Which of the following is not a separate management function?

a. Planning
b. Directing
c. Decision-making
d. Controlling
132. Directing includes

a. providing a framework for management to have criteria to terminate
employees when needed.
b. running a department under quality control standards universally
accepted.
c. coordinating a company's diverse activities and human resources to
produce a smooth-running operation.
d. developing a complex performance ranking system to give certain high
performers good raises.
133. Both direct materials and indirect materials are

a. raw materials.
b. manufacturing overhead.
c. merchandise inventory.
d. sold directly to customers by a manufacturing company.
134. The work of factory employees that can be physically and directly associated
with converting raw materials into finished goods is
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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
c. Insurance on factory building
d. Indirect materials
136. Manufacturing costs include
a. direct materials and direct labor only.
b. direct materials and manufacturing overhead only.
c. direct labor and manufacturing overhead only.
d. direct materials, direct labor, and manufacturing overhead.
137. Which one of the following is not a direct material?

a. A tire used for a lawn mower
b. Plastic used in the covered case for a home PC
c. Steel used in the manufacturing of steel-radial tires
d. Lubricant for a ball-bearing joint for a large crane
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.
140. The wages of a timekeeper in the factory would be classified as

a. a period cost.
b. direct labor.
c. indirect labor.
d. compliance costs.
141. Which one of the following is not considered as material costs?

a. Partially completed motor engines for a motorcycle plant
b. Bolts used in manufacturing the compressor of an engine
c. Rivets for the wings of a new commercial jet aircraft
d. Lumber used to build tables
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142. Which of the following is not a manufacturing cost category?

a. Cost of goods sold
b. Direct materials
c. Direct labor
d. Manufacturing overhead
143. As current technology changes manufacturing processes, it is likely that

direct
a. labor will increase.
b. labor will decrease.
c. materials will increase.
d. materials will decrease.
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.
145. Which of the following is not classified as direct labor?

a. Bottlers of beer in a brewery
b. Copy machine operators at a copy shop
c. Wages of supervisors
d. Bakers in a bakery
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
148. Because of automation, which component of product cost is declining?

a. Direct labor
b. Direct materials
c. Manufacturing overhead
d. Advertising
149. The product cost that is most difficult to associate with a product is
a. direct materials.
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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.
151. Which one of the following is an example of a period cost?

a. A change in benefits for the union workers who work in the New York
plant of a Fortune 1000 manufacturer
b. Workers' compensation insurance on factory workers' wages allocated to
the factory
c. A box cost associated with computers
d. A manager's salary for work that is done in the corporate head office
152. Which one of the following costs would not be inventoriable?

a. Period costs
b. Factory insurance costs
c. Indirect materials
d. Indirect labor costs
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
154. Which of the following are period costs?

a. Raw materials
b. Direct materials and direct labor
c. Direct labor and manufacturing overhead
d. Selling expenses
155. Sales commissions are classified as

a. overhead costs
b. period costs.
c. product costs.
d. indirect labor.
156. Product costs consist of

a. direct materials and direct labor only.
b. direct materials, direct labor, and manufacturing overhead.
c. selling and administrative expenses.
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d. period costs.
157. Which one of the following represents a period cost?

a. The VP of Sales' salary and benefits
b. Overhead allocated to the manufacturing operations
c. Labor costs associated with quality control
d. Fringe benefits associated with factory workers
158. Product costs are also called

a. direct costs.
b. overhead costs.
c. inventoriable costs.
d. capitalizable costs.
159. For inventoriable costs to become expenses under the matching principle,
a. the product must be finished and in stock.
b. the product must be expensed based on its percentage-of-completion.
c. the product to which they attach must be sold.
d. all accounts payable must be settled.
170. As inventoriable costs expire, they become

a. selling expenses.
b. gross profit.
c. cost of goods sold.
d. sales revenue.
171. A manufacturing company calculates cost of goods sold as follows:

a. Beginning FG inventory + cost of goods purchased – ending FG inventory.
b. Ending FG inventory – cost of goods manufactured + beginning FG
inventory.
c. Beginning FG inventory – cost of goods manufactured – ending FG
inventory.
d. Beginning FG inventory + cost of goods manufactured – ending FG
inventory.
172. A manufacturing company reports cost of goods manufactured as a(n)

a. current asset on the balance sheet.
b. administrative expense on the income statement.
c. component in the calculation of cost of goods sold on the income
statement.
d. component of the raw materials inventory on the balance sheet.
173. The subtotal, "Cost of goods manufactured" appears on

a. a merchandising company's income statement.
b. a manufacturing company's income statement.
c. both a manufacturing and a merchandising company's income statement.
d. neither a merchandising nor a manufacturing company's income
statement.
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174. Cost of goods manufactured in a manufacturing company is analogous to

a. Ending inventory in a merchandising company.
b. Beginning inventory in a merchandising company.
c. Cost of goods available for sale in a merchandising company.
d. Cost of goods purchased in a merchandising company.
1175. Cost of goods sold
a. only appears on merchandising companies' income statements.

b. only appears on manufacturing companies' income statements.
c. appears on both manufacturing and merchandising companies' income
statements.
d. is calculated exactly the same for merchandising and manufacturing
companies.
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.
d. raw materials inventory.
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
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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.
182. What is “balanced” in the balanced scorecard approach?

a. The number of products produced
b. The emphasis on financial and non-financial performance measurements
c. The amount of costs allocated to products
d. The number of defects found on each product
183. For what purpose is the theory of constraints used?

a. To reduce product defects
b. To balance performance measurement
c. To identify and manage constraints that bottle-neck operations
d. To reduce inventory levels
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?
a. Manufacturing overhead associated with allocation of equipment
depreciation
b. Direct labor costs of a welder on the production floor
c. Manufacturing overhead associated with allocation of the plant lease to
the latest production run
d. Direct materials cost with several fuse plates for a new automobile
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
187. What is ERP’s primary benefit?

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a. It can eliminate stand alone systems that do not share information easily
for manage-ment’s use.
b. It allows management to rely on the simplest way to utilize information
systems in a manufacturing environment.
c. It permits line workers to perform accounting and marketing tasks.
d. It calculates year end bonuses to a precision not available in traditional
information systems management.
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
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
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c. Manufacturing Summary
d. Finished Goods Inventory
194. Financial and managerial accounting are similar in that both

a. have the same primary users.
b. produce general-purpose reports.
c. have reports that are prepared quarterly and annually.
d. deal with the economic events of an enterprise.
195. The function that pertains to keeping the activities of the enterprise on track
is
a. planning.
b. directing.
c. controlling.
d. accounting.
196. Property taxes on a manufacturing plant are an element of a

Product Cost Period Cost
a. Yes No
b. Yes Yes
c. No Yes
d. No No
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.
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
ENVIRONMENT
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.
204. Implementation of the total Quality Management in a firm:

a. must follow a rigid, predetermined process to be successful
b. involves some lower level managers and all senior executive
c. takes from 3-5 years
d. is a bottoms up process, with senior management involved only in the
final phase.
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”
206. the quality cost of prevention is

a. Exampled by the cost of servicing warranties
b. Refers only to zero-defect programs
c. An upstream cost
d. A downstream cost
207. Typically, as prevention costs increase, other cost of quality

ENVIRONMENT
a. Are not affected

b. Change, but the direction cannot be predicted
c. Increase, but slower pace
d. Decrease
208. Examples of the quality cost of prevention include all of the following, except:
a. Tuition for external training
b. Additional tolerance controls for machinery
c. Depreciation of a training room
d. An annual award for lowest rework rate
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
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214. just in time purchasing requires

a. Larger and less frequent purchase orders
b. Smaller and less frequent purchase orders
c. Smaller and more frequent purchase orders
d. Larger and more frequent purchase order
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
217. cost quality reports usually do not consider the

a. External failure cost
b. Opportunity cost
c. Internal failure cost
d. Appraisal cost
218. changing to an activity based costing management system will not

a. Change the way that the resources are allocated
b. Change the way that the cost are allocated
c. Change all the people’s job
d. Change the way that the performance is evaluated
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
221. the just in time manufacturing system is also called the

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a. Job in training system

b. Job in transit system
c. Zero cost system
d. Zero inventories system
222. the traditional focus in management accounting has been to develop

a. Only quantitative performance measure
b. Only qualitative performance measures.
c. Both quantitative and qualitative measure
d. Neither quantitative and qualitative measure
223. a well-designed MACS develop and uses

a. Both qualitative and quantitative information for control, motivation, and
performance evaluation
b. Only quantitative information for control, motivation, and performance
evaluation
c. Only qualitative information for control, motivation and performance
evaluation
224. In the contemporary business environment, cost management focuses on

a. Financial reporting and cost analysis
b. Common emphasis on standardization and standard occur
c. Development and implementation of the business strategy
d. All of the above
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
226. value engineering can result in the

a. Product design
b. Changes in material specification
c. Modifications in the process method
d. All of the above
227. strategic cost management has emerged from a blending of:

a. Cost driver analysis
b. Strategic position analysis
c. Value chain analysis
d. All of the above
228. strategic planning is different from operational planning is that the operational
planning:
a. Involves large sum of money
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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
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
231. total quality management emphasizes

a. Zero defects
b. Continuous improvement
c. An elimination of waste
d. All of the above
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
ENVIRONMENT
b. In the same direction or at an equal pace

c. Unique and differentiated
d. Simultaneous and positive
236. how can productivity be improved?

a. Using less inputs to produce the same outputs
b. Using the same input to produce more output
c. Improve input trade off efficiency by using a less costly mix of input
d. All of the above
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
c. Basis for financial reporting
d. Common denominator with commercial firms
238. productivity increases if:

a. Less output is produce with more input
b. Using the same input to produce more output
c. The same output is produced with fewer inputs
d. Laborers put in more effort
239. an advantage of partial measures of productivity is that it:

a. Allow managers to focus on the use of particular input
b. Is a complex measure that is difficult to interpret by everyone in the
organization
c. Looks at the effects of multiple inputs
d. Is a perfect measure of performance
240. Characteristics of total management include:

a. Focusing on customer satisfaction
b. Striving on continuous improvement
c. Involvement of the entire workforce
d. All of the following
241. a technique by which the companies analyze fluctuations in a process is

called:
a. Statistical process control
b. A quality audit
c. Benchmarking
d. Pareto analysis
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
ENVIRONMENT
243. which of the following is not an important principle of TQM?

a. The organization should focus on improving goods from the customers
view point
b. Everyone in the organization is required to participate
c. There should be a system of planning, controlling, and decision making
d. Complacency is the norm
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
245. an approach to developing new way to perform existing activities is called

a. Process value analysis
b. Re-engineering
c. Caveat analysis
d. Benchmarking
246. a danger in process reengineering is that:

a. Non value added activities may be eliminated
b. Some resources may no longer be required
c. Employee morale may suffer
d. All of the above
247. the goal of the total quality control is

a. To have less defective material than good material
b. To permit defects as long as they do not exceed a certain level
c. To have zero defect
d. All of the above
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
249. which of the following represents an external failure cost

a. Reprocessing a defective product before shipment
b. Replacing a defective product after shipment
c. Hiring for quality
d. Inspecting products during production
ENVIRONMENT
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
251. continuous improvement is synonymous with:

a. Process benchmarking
b. Total quality management
c. Management by objective
d. Management by exception
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
253. the cost of downtime on machines while rework is being performed is a

a. Appraisal costs
d. Prevention costs
254. the costs of reworking the defective units to make them saleable are classified
as
a. Appraisal costs
d. Prevention cost
255. the costs caused by the inefficiency in prevention activities are:

a. Non value added costs
b. Value added costs
c. Neither of the two
d. Both A and B
256. the ultimate purpose of the competitor analysis is to

a. Identify the competition
b. Determine the competition’s strength and weaknesses
c. Identify the competitions major customers
d. Understand and predict the behavior of the competition
257. target marketing analysis involves

a. Analyze the firm’s input market
ENVIRONMENT
b. Understanding and segmenting the firm’s customer market

c. Analyzing the firm’s market structure
d. Deciding on whether to offer a new product line
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
261. Inventory holding costs typically include:

A clerical costs of purchase-order preparation.
B costs of deterioration, theft, or spoilage.
C costs associated with lost sales to customers.
D forgone interest on money tied up in inventory.
E items "B" And "D" above.
262. Inventory holding costs would typically include all of the following except:
A. insurance.
B. theft.
C. transportation.
D. obsolescence.
E. warehouse rent.
263. At the economic order quantity:

A. total annual inventory costs, holding costs, and ordering costs are all
minimized.
B. total annual inventory costs and holding costs are minimized.
C. total annual inventory costs are minimized, and holding costs equal
ordering costs.
ENVIRONMENT
D. total annual inventory costs are minimized, and holding costs exceed
ordering costs.
E. total annual inventory costs are minimized, and ordering costs exceed
holding costs.
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.
266. JIT purchasing can be used by

a. Retailer
b. Wholesaler
c. Manufacturer
d. All of the above
267. Which of the following statements about JIT is true?

a. Under JIT, partially completed units are pushed from one workstation to
another to ensure all workstations have enough work to keep busy
b. A company will typically have fewer suppliers under JIT than under
conventional system
c. For JIT to operate successfully, all similar pieces of equipment must be
grouped together
d. JIT requires an increase in funds to finance additional inventories
268. under JIT

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
ENVIRONMENT
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
272. The primary objective of JIT processing is to

a. Identify relevant activity cost drivers
b. Accumulate overhead in the activity cost pool
c. Identify NVA activities
d. Eliminate or reduce the inventories
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
d. Wastage
ENVIRONMENT
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
d. External failure costs
1. Scrap
Internal Failure Costs
2. Recalls
External Failure Costs
3. Warranty work
4. Testing
Appraisal Costs
5. Vendor quality
Preventive Costs
6. Returned merchandise
7. Preventive machine maintenance

Preventive Costs
8. Operator training
Preventive Costs
9. The just-in-time (JIT) philosophy attempts to reduce setup times, which will:
a. increase batch sizes
ENVIRONMENT
b. not affect batch sizes

c. increase within-batch wait time
d. decrease within-batch wait time
10.What do just-in-time (JIT) manufacturers demand from their vendors?

a. High quality materials
b. Low cost materials
c. On-time deliveries
d. All of the above
11.How are the objectives of just-in-time (JIT) manufacturing achieved?

a. Product-oriented production layout
b. Employee involvement
c. Supplier partnering
d. All of the above
12.What are the objectives of just-in-time (JIT) manufacturing?

a. Eliminating waste
b. Increasing inventory levels
c. Increased number of inspections
d. A process orientation
13. Reduction of inventory is a ____ principle.

a. Just in Time
b. Traditional
14. Set up time is disregarded as an improvement priority under the ____

manufacturing concept.
a. Traditional
b. Just in Time
15. ____ manufacturing philosophy emphasizes quality and zero defects.

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
17. Just-in-time manufacturing philosophy reduces the following except

a. Inventory
b. setup time
c. lead time
d. overhead costs
ENVIRONMENT
18. Traditional manufacturing emphasizes the following except

a. Team oriented employee involvement
b. Process-oriented layout
c. Push manufacturing
d. Increase lead time
19. Which of the following is considered nonvalue- added lead time?

a. Packing
b. Time moving from operation to operation
c. Inspections
d. all of the above
20. Which of the following is used to reduce setup time?

a. Reduce the number of inventory in batches
b. Increase the number of setups
c. Increase inventory levels
d. Increase the number of inventory in batches.
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
ENVIRONMENT
24. Which of the following is characteristic of a just-in-time (JIT)

production layout?
a. Decentralized maintenance
b. Small production batches
c. Organization around processes
d. Both A and B
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
26. Examples of transforming a traditional manufacturing environment

to a Just-In-Time environment is to do all of the following except
a. Form partnerships with reliable suppliers.
b. Reorganize operational processes to organized product lines.
c. Train employees to perform various operations.
d. Increase raw materials to produce more thereby increasing
finished goods inventory to have to sell
27. Which of the following is characteristic of a just-in-time (JIT) system?

a. Fewer work in process account transactions
b. Work in process and raw materials accounts combined
c. Elimination of the direct labor account
d. All of the above
28. Which of the following is characteristic of a traditional cost system?

a. Many work in process account transactions
b. Reliance on financial performance measures
c. Many process control points
d. All of the above
29. Which of the following is an example of a nonfinancial measure?

a. Lead time
b. Setup time
c. Units scrapped
ENVIRONMENT
d. All of the above
30. Which of the following is best suited to providing timely and focused
performance information?
a. Nonfinancial information
b. Financial accounting information
c. Cost accounting information
d. Variance analysis
31. Accounting for Just-In-Time operations requires fewer transactions

because
a. large batches of inventory are combined in a smaller number of
transactions
b. costs are accumulated in departments and then transferred to
the next department
c. combined material and conversion costs are transferred to
finished goods.
d. costs are transferred from department to department thus
allowing for better controls in costs
32. Just-In-Time accounting has fewer transactions because

a. all manufacturing costs are combined in one account called Raw
and In Process Inventory
b. employees in production cells are required to perform various
tasks, some are considered direct costs and some are indirect
costs. Therefore the distinction is eliminated.
c. Less movement of inventory between department to
department.
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.
ENVIRONMENT
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?
a. reduce the requirements necessary to enroll.
b. relocate counselors, academic advisors, and financial aid
specialists for a major to a central location.
c. train counselors, academic advisors, and financial aid specialists
to serve like majors.
d. Cross train counselors, academic advisors, and financial aid
specialists.
36. Which of the following statements is correct?

a. Costs of controlling quality include prevention and appraisal
costs
b. Costs of failing to control quality include internal and external
failure costs
c. A and B are both correct
d. A and B are both incorrect.
37. All of the following except one are examples of prevention costs
a. preventive maintenance
b. operator training
c. design engineering
d. testing activities
38. The following are examples of external failure costs except

a. warranty work
b. returned merchandise
c. rework
d. correcting invoice errors
39. Which of the following statements best describes the relationship

between costs of quality?
ENVIRONMENT
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.
40. The following are examples of nonvalue added activities except

a. Inspections
b. Rework
c. preventive maintenance
d. warranties
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.
71.Productivity is measured by the

a. total quantity of output generated from a limited amount of input during
a time period.
b. quantity of good output generated from a specific amount of input during
a time period.
c. quantity of good output generated from the quantity of good input used
during a time period.
d. total quantity of input used to generate total quantity of output for a time
period.
ENVIRONMENT
72.Failure Corporation is a manufacturer of a versatile statistical calculator. The

following information is a summary of defective and returned units for the
previous year.
Total defective units 1,000
Number of units reworked 750
Number of customer units returned 150
Profit for a good unit P40
Profit for a defective unit P25
Cost to rework a defective unit P10
Cost of a returned unit P15
Total prevention cost P10,000
Total appraisal cost P5,000
The total quality cost is

a. P15,000. c. P28,500.
b. P15,750. d. P11,250.
Failure costs:
Rework cost (750 units x P10) P7,500
Returned units (150 x P15) 2,250
Not reworked (250 units x P15) 3,750 P13,500
Prevention costs 10,000
Appraisal cost 5,000
Total quality costs P28,500
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.
MULTIPLE CHOICE: PROBLEMS

Question Nos. 1 and 2 are based on the following:
Prior to installing a JIT system, Friendly Company used machine hours to assign
maintenance costs to its three products of 4-inch, 6-inch, and 9-inch insulation.
The maintenance costs totaled P840,000 per year. The machine hours used by
each product and the quantity produced of each product are as follows:
Machine Hours Quantity Produced
4-inch 6,000 15,000 rolls
6-inch 10,000 12,500 rolls
9-inch 8,000 11,200 rolls
ENVIRONMENT
After installing JIT, three manufacturing cells were created and the cell workers
were trained to perform maintenance. Maintenance costs for the three cells still
totaled P840,000; however, these costs are now traceable to each cell.
Cell, 4-inch P220,000
Cell, 6-inch 300,000
Cell, 9-inch 320,000
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 ÷ P14
15,000)
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
Maintenance cost per unit, 9-Inch: (P320,000 ÷ 11,200) = P28.57
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
Materials cost (700 x P12.50) P 8,750
Conversion costs (700 x 0.25 x P200) 35,000
Total P43,750
4. Big Computers has the following personnel:

Seven assemblers: manufacture the mother boards
One owner: writes the paychecks
Two inspectors: inspect the final computers
Three fabricators: make the computer cases
ENVIRONMENT
One computer programmer: runs all of the bookkeeping for the accounting
records
Two shipping clerks; ship computers to the warehouse
What would be the value-added labor ratio for this company?
a. 4/8 or 37.5 percent c. 5/8 or 62.5 percent
b. ½ or 50 percent d. ¾ or 75 percent
Value-added labor:
Assemblers 7 personnel
Fabricators 3 personnel
Total 10 personnel
Value-added activity ratio: (10 ÷ 16) 5/8 or 62.5%
Questions 5 & 6 are based on the following information.

At the beginning of 2005, Peterson Company installed a JIT purchasing and
manufacturing system. The following information has been gathered about one of
the company's products:
Theoretical annual capacity 2,200
Actual production 2,000
Production hours available 800
On-time deliveries 900
Total deliveries 950
5. The theoretical velocity is:

a. 2.32 units per hour c. 2.5 units per hour
b. 2.44 units per hour d. 2.75 units per hour
Theoretical velocity = Theoretical capacity ÷ Available hours
(2,200 units ÷ 800 hours) = 2.75 units per hour
6. Actual velocity is:

a. 2.5 units per hour c. 2.32 units per hour
b. 2.75 units per hour d. 2.44 units per hour
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.
ENVIRONMENT
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.
Increase in throughput contribution (P72 – P32) x 1,000 P40,000

Incremental costs of the jigs and tools 30,000
Net benefit of investing in jigs and tools P10,000
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.
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:
ENVIRONMENT
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.
Increase in throughput contribution (P72 – P32) x 12,000 P480,000

Incremental contracting costs P10 x 12,000 120,000
Net benefit of contracting 12,000 units of finishing P360,000
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:
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
ENVIRONMENT
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:
Lost of direct materials P32 x 2,000 P 64,000

Forgone throughput contribution (P72 – P32) x 2,000 80,000
Total cost of 2,000 defective units P144,000
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?
ENVIRONMENT
SUPPORTING ANALYSIS
The Adoracion Company

Comparative Costs of Quality Report
Increase
Costs Categories 2005 2006 (Decrease)
Prevention costs:
Training P P P25,000
75,000 100,000
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
Internal failure costs:

Rework 325,000 100,000 (225,000)
Retesting 250,000 200,000 (50,000)
Total internal failure 575,000 300,000 (275,000)
External failure costs:

Warranty repairs 150,000 75,000 (75,000)
Product recalls 400,000 200,000 (200,000)
Product liability 125,000 75,000 (50,000)
Total external failure 675,000 350,000 (325,000)
Total costs of quality P1,600,00 P1,175,00 P (425,000)
0 0
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.
ENVIRONMENT
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 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:
Rework 3,000 x 40% x P2,000 = P

2,400,000
Repair 3,000 x 15% x P2,500 =
1,125,000
Appraisal
600,000
Inspection 3,000 x P50 =
150,000
Lost contribution:
Contribution margin per unitP12,000 x 85% - P2,500 = P7,700
Lost sales 3,000  0.8 – 3,000 = x 750 5,775,000
ENVIRONMENT
Total current cost of quality

P10,050,000
Quality cost with the new process:
Warranty repair3,000  0.8 x 5% x P1,000 = –
187,500
Savings from the new process each year P
9,862,500
Years effective x
3
Total
P29,587,500
Appraisal and inspection cost in Year 1 –
750,000
Total savings over 3 years
P28,837,500
Requirement 3
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:
a. Accuracy of cost estimates including

 Contribution margin per unit
 Costs of current repair and rework
 Cost of repair with the new process
 Cost of the new process
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
ENVIRONMENT
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.
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.
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.
Cost of quality Costs

 Rework P6000
 Recalls 15000
 Reengineering efforts 9000
 Repair 12000
 Replacements 12000
 Retesting 5000
 Supervision 18000
 Scrap 9000
 Training 15000
 Testing of incoming materials 7000
ENVIRONMENT
 Inspection 18000
 Downtime 10000
 Product liability insurance 9000
 Quality audits 5000
 Continuous improvement 1000
 Warranty repair 15000
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.
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
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
ENVIRONMENT
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.
3. Give six examples of non-financial measures that Bali might want to monitor
as part of a total quality management effort.
Requirements 1 & 2
Bali Company
Cost of Quality Report
For 2005 and 2006
Cost of Quality 2006 2005

Category Peso % Peso %
Prevention costs:
Quality manual P 40,000 P 50,000
Product design P
300,000 340,000 5.67 270,000 P320,000 5.33
Appraisal costs:
Testing P 80,000 80,000 1.33 P 60,000 60,000 1.00
ENVIRONMENT
Internal failure costs:

Rework P200,000 P250,000
Retesting 50,000 90,000
Disposal of defective 90,00
units 0 340,000 5.67 85,000 425,000 7.08
External failure costs:
Product recalls P360,000 P500,000
Field service 230,00 590,00 850,00 14.1
0 0 9.83 350,000 0 7
Total cost of quality P1,350,00 P1,655,00 27.5
0 22.50 0 8
a. There were slight increases in both prevention and appraisal costs from 2005
to 2006. Each of these two cost of quality increased by approximately 0.33
percent of the total sales. These two costs increased by P40,000 over the
two years.
b. Both internal failure costs and external failure costs decreased substantially
in 2006 as compared to those in 2005. The firm experienced a 1.41 percent
decrease in internal failure and a 4.34 percent decrease in external failure
costs with the total savings of P345,000. The savings was 863 percent of
the increases in prevention and appraisal costs.
Requirement 3
Among nonfinancial measures the firm may want to monitor are:

 The number of defects or the processes yield (ratio of good output to
total output)
 The percentage of defective units shipped to customers to total units of
products shipped
 The number of customer complaints
 Difference between delivery date requested by the customer
 On-time delivery percentage (total units shipped on or before the
scheduled date to the total units shipped)
 Surveys of customer satisfaction
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:
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):
Equipment Manufactured Equipment

Installed
Annual capacity 400units per year 300 units per year
Equipment manufactured and installed 300 units/year 300 units per year
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?
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
ENVIRONMENT
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
Increase in relevant cost P 50000
The additional throughput contribution exceeds incremental cost by
P200000, so DI NA MULI Industries should implement the new installation
technique.
4. Additional relevant costs of new direct materials
P640,000 (P2000*320 units)
Increase in throughput contributions P25,000*20 units
P500,000
The additional incremental cost exceed the benefit from higher

throughput contribution by P140000, s DI NA MULI Industry should not
implement the new design.
Alternatively, compare throughput contribution under each

alternative.
Current throughput contribution is P25000*300
P7,500,000
With modification, throughput contribution is P23000*320
P7,360,000
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:
ENVIRONMENT
REFERENCES:
 https://www.coursehero.com/search/results/193629894/e4517111e19
32b3432/
 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


Chapter 26 Managing Accounting in A Changing Environment: Essay

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Chapter 26 Managing Accounting in A Changing Environment: Essay

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CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING

1. What roles do management accountants play in TQM?

2. How can management accountants meet the challenges of TQM?

3. Describe JIT purchasing and its benefit.

4. What are the core principles of total quality management?

5. Why is continuous quality improvement essential to achieve TQM and critical

6. What is cost of conformance?

7. What is cost of Nonconformance?

8. Many organizations found that investment in prevention and appraisal

12.Describe the 3 main measures used in the theory of accounts.

13.Describe the four key steps in managing bottleneck operations.

14.What are the purposes of conducting a quality audit?

15.What is gap analysis?

16.Describe the processes for an effective implementation of TQM.

17.What are the main features in a JIT production system?

18.Why is it often necessary to revise a firm’s compensation and appraisal

MULTIPE CHOICE: THEORIES

1.Which of the following statements about managerial accountants is false?

3. Which of the following functions is best described as choosing among

4. Which of the following managerial functions involves a detailed financial and

5. Which of the following involves the coordination of daily business functions

7. Which of the following is not an objective of managerial accounting?

8. The role of managerial accounting information in assisting management is

9. Employee empowerment involves encouraging and authorizing workers to

10. The process of encouraging and authorizing workers to take appropriate

11. Which of the following business models considers financial, customer,

12. Which of the following perspectives is normally absent in a balanced

13. Managerial accounting:

14. Managerial accounting:

15. Which of the following would likely be considered an internal user of

18. Financial accounting focuses primarily on reporting:

19. Which of the following statements represents a similarity between financial

20.Which of the following employees at American Airlines would not be considered

21. Which of the following employees would be considered as holding a line

22. Which of the following employees at Starbucks would likely be considered as

23. The chief managerial and financial accountant of an organization is the:

25. A controller is normally involved with:

26. Which of the following is not a function of the treasurer?

27. Managerial accountants:

28. The two dimensions of managerial accounting are:

29. Much of managerial accounting information is based on:

30. Which of the following is not normally considered to be an

31. Managerial accounting has changed in recent years because of:

32. Managerial accounting has changed in recent years because of:

A. a growing service economy in the United States.

33. Which of the following statement(s) about just-in-time (JIT) inventory

I The emphasis of JIT is on "pull" manufacturing.

34. Ohio Corporation recently implemented a just-in-time (JIT) production system

35. Cost management systems tend to focus on an organization's:

included in a manufacturer's value chain?

39. The activities performed by a manufacturing organization could be

40. In order for a company to achieve a sustainable competitive

E. sound management practices (SMP).

45Which of the following statements about the ethical climate of business is

46. Which of the following is not an ethical standard of managerial accounting?

47. Which of the following is not an element of competency?

48. Assume that a managerial accountant regularly communicates with business

49. The major users of accounting information are

50. Good accounting information helps an organization by:

51. Which of the following should be considered in the selection of an accounting

53. Which of the following is NOT and example of a special report?

54.The process of setting goals is called: