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Chapter 26 Managing Accounting in A Changing Environment: Essay
Chapter 26 Managing Accounting in A Changing Environment: Essay
ENVIRONMENT
ESSAY:
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.
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.
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.
E. Budgeting.
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.
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
A. Pilot.
B. Chief financial officer (CFO).
C. Flight attendant.
D. Ticket agent.
E. Baggage handler.
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.
A. I only.
B. II only.
C. III only.
D. II and III.
E. I, II, and III.
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
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ENVIRONMENT
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.
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.
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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.
52. The cost-benefit balance weighs _____ costs against _____ benefits:
a. actual; actual
b. actual; estimated
c. estimated; estimated
d. estimated; actual
c. competitor analysis
d. advertising impact analysis
55. The focus on customers occurs in which functions of the value chain:
a. research and development
b. production
c. marketing
d. distribution
e. all of the above
57. The functions of planning for control, evaluating and consulting, and
governmental reporting are typically assumed within organizations by:
a. the company treasurer
b. the company controller
c. the company vice-president of marketing
d. external auditors
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
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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.
Department
A) Staff Staff
B) Staff Line
C) Line Staff
D
) Line Line
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.
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.
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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.
84. One of the ways managerial accounting differs from financial accounting is that
managerial accounting
a. is bound by generally accepted accounting principles.
b. classifies information in different ways.
c. does not use financial statements.
d. deals only with economic events.
89. Which classification of costs is most relevant for income statements to be used
internally?
a. Behavior.
b. Function.
c. Method of payment.
d. Object.
90. The set of processes that transform raw materials into finished products is
known as a
a. differentiation strategy.
b. flexible manufacturing system.
c. lowest cost strategy.
d. value chain.
92. The period that begins with the arrival of materials and ends with the shipment
of a completed good is the
a. cycle time.
b. manufacturing cell.
c. computer-integrated manufacturing.
d. performance period.
d. Reporting.
97. The professional certification most relevant for managerial accountants is the
a. CMA.
b. CPA.
c. CSA.
d. MAS.
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.
124. What activities and responsibilities are not associated with management's
functions?
a. Planning
b. Accountability
c. Controlling
d. Directing
c. Controlling
d. Directing
129. The management function that requires managers to look ahead and
establish objectives is
a. controlling.
b. directing.
c. planning.
d. constraining.
134. The work of factory employees that can be physically and directly associated
with converting raw materials into finished goods is
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
ENVIRONMENT
a. manufacturing overhead.
b. indirect materials.
c. indirect labor.
d. direct labor.
138. Which one of the following is not a cost element in manufacturing a product?
a. Manufacturing overhead
b. Direct materials
c. Office salaries
d. Direct labor
139. A manufacturing process requires small amounts of glue. The glue used in
the production process is classified as a(n)
a. period cost.
b. indirect material.
c. direct material.
d. miscellaneous expense.
144. For the work of factory employees to be considered as direct labor, the work
must be conveniently and
a. materially associated with raw materials conversion.
b. periodically associated with raw materials conversion.
c. physically associated with raw materials conversion.
d. promptly associated with raw materials conversion.
146. Cotter pins and lubricants used irregularly in a production process are
classified as
a. miscellaneous expense.
b. direct materials.
c. indirect materials.
d. nonmaterial materials.
147. Which of the following is not another name for the term manufacturing
overhead?
a. Factory overhead
b. Pervasive costs
c. Burden
d. Indirect manufacturing costs
149. The product cost that is most difficult to associate with a product is
a. direct materials.
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b. direct labor.
c. manufacturing overhead.
d. advertising.
d. period 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.
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.
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
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.
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
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
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c. Manufacturing Summary
d. Finished Goods Inventory
195. The function that pertains to keeping the activities of the enterprise on track
is
a. planning.
b. directing.
c. controlling.
d. accounting.
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.
201. If the total manufacturing costs are greater than the cost of goods
manufactured, which of the following is correct?
a. Work in Process Inventory has increased.
b. Finished Goods Inventory has increased.
c. Work in Process Inventory has decreased.
d. Finished Goods Inventory has decreased.
202. The sum of the direct materials costs, direct labor costs, and manufacturing
overhead incurred is the
a. cost of goods manufactured.
b. total manufacturing overhead.
c. total manufacturing costs.
d. total cost of work in process.
203. The inventory accounts that show the cost of completed goods on hand and
the costs applicable to production that is only partially completed are,
respectively
a. Work in Process Inventory and Raw Materials Inventory.
b. Finished Goods Inventory and Raw Materials Inventory.
c. Finished Goods Inventory and Work in Process Inventory.
d. Raw Materials Inventory and Work in Process Inventory.
205. Goalpost quality conformance differs from the absolute quality conformance
like:
a. “generally” differs from “always”
b. “ranges” differs from “point”
c. “probable” differs from “certain”
d. “many” differs from “one”
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
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
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
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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
220. one common mistake that managers make when changing to a new cost
management system is
a. They involve to many in making the change
b. They take too long to implement the change
c. They over-budget for the cost of the change
d. They try to change too many things simultaneously
225. the overall recognition of the importance of the cost relationships among the
activities in the value chain and the process of managing those cost relationships
among the activities in the value chain is called
a. The theory of constraint
b. The value chain
c. Activity based management activities
d. Strategic cost management
228. strategic planning is different from operational planning is that the operational
planning:
a. Involves large sum of money
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
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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
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
235. changes in the productivity of different types of resources are not always:
a. Measurable and observable
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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
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
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244. which of the following is the correct sequence of the value chain?
a. Design, research and development, production, supply, marketing,
customer service, distribution
b. Research and development, design, supply, production, marketing,
distribution, and customer service
c. Research and development, design, supply, production, marketing,
customer service, distribution
d. Supply, research and development, design, production, marketing,
distribution, customer service
248. cost incurred to improve the product quality by precluding product defects
are known as:
a. Internal failure cost
b. External failure cost
c. Appraisal cost
d. Prevention cost
250. if a company has high failure cost, the best course of action reduce total
quality costs would be to :
a. Increase prevention cost
b. Increase the costs associated with compliance
c. Increase the cost of non-compliance
d. Increase appraisal cost
252. the quality costs that are incurred to determine whether particular units of
product meet quality standards are:
a. Appraisal costs
b. External failure costs
c. Internal failure costs
d. Prevention costs
254. the costs of reworking the defective units to make them saleable are classified
as
a. Appraisal costs
b. External failure costs
c. Internal failure costs
d. Prevention cost
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
262. Inventory holding costs would typically include all of the following except:
A. insurance.
B. theft.
C. transportation.
D. obsolescence.
E. warehouse rent.
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.
270. Which of the following is among the benefits of adopting JIT system
a. Reduction in the number of deliveries of materials
b. Increase in the number of suppliers
c. Performance of non-value added activities
d. Maximization of standard delivery quality
271. a company switched from the traditional to JIT system, the change will
a. Decrease the company’s inventory as a percentage of the total assets
b. Decrease in the company’s inventory turn over
c. Increase the company’s inventory as a percentage of total assets
d. Not affect the company’s turn over and its inventory as a percentage of
total assets
273. Ideally, the number of units that should be produced in a just in time
manufacturing system is equal to
a. The maximum productive capacity for the current period
b. Actual customer demand for the current period
c. Budgeted customer demand for the current period
d. Budgeted customer demand for the following period
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
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277. These costs are incurred to keep the defective products from falling into the
hands of the customers, are composed of
a. Prevention and appraisal costs
b. Failure cost
c. Quality cost
d. Appraisal and inspection cost
.
279. Nonconformance costs are composed of the following
a. Prevention and appraisal cost
b. Internal and external failure cost
c. Costs of technical support
d. Cost of testing
Questions 197 to 204 are based on the following choices: (Matching Type)
Identity the following by their type of quality cost.
a. Preventive costs
b. Appraisal costs
c. Internal failure costs
d. External failure costs
1. Scrap
Internal Failure Costs
2. Recalls
External Failure Costs
3. Warranty work
External Failure Costs
4. Testing
Appraisal Costs
5. Vendor quality
Preventive Costs
6. Returned merchandise
External Failure Costs
8. Operator training
Preventive Costs
9. The just-in-time (JIT) philosophy attempts to reduce setup times, which will:
a. increase batch sizes
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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
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.
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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.
37. All of the following except one are examples of prevention costs
a. preventive maintenance
b. operator training
c. design engineering
d. testing activities
a. A,b,c
b. C,a,d
c. B,c,d
d. A,b,d
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.
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
SUPPORTING ANALYSIS/COMPUTATION:
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
SUPPORTING ANALYSIS/COMPUTATION:
Materials cost (700 x P12.50) P 8,750
Conversion costs (700 x 0.25 x P200) 35,000
Total P43,750
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
SUPPORTING ANALYSIS/COMPUTATION:
Value-added labor:
Assemblers 7 personnel
Fabricators 3 personnel
Total 10 personnel
Value-added activity ratio: (10 ÷ 16) 5/8 or 62.5%
SUPPORTING ANALYSIS/COMPUTATION:
Theoretical velocity = Theoretical capacity ÷ Available hours
(2,200 units ÷ 800 hours) = 2.75 units per hour
SUPPORTING ANALYSIS/COMPUTATION:
Actual Velocity: Actual Production ÷ Available Hours
(2,000 ÷ 800) = 2.5 units per hour
SHORT PROBLEMS:
PROBLEM 1:
Kaya pa ba Corporation manufactures filing cabinets in two operations machining
and finishing. It provides the following information.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
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
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
PROBLEM 2:
Refer to the information in problem above in answering the following requirements.
There is no connection between the requirements.
REQUIRED:
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
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SUPPORTING ANALYSIS
Requirement 1
Requirement 2
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
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
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Requirement 1
Requirement 2
Alternatively, the cost of 2,000 defective units at the finishing operation can
be calculated as the lost revenue of P72 x 2,000 = P144,000. This line of
reasoning takes the position that direct materials costs of P32 x 2,000 =
P64,000 and all fixed operating costs in the machining and finishing
operations would be incurred anyway whether a defective or good unit is
produced. The cost of producing a defective unit is the revenue lost of
P144,000.
PROBLEM 4:
The Adoracion Company incurred these cost of quality
2018 2019
Calibration P75000 P100000
Product design 150000 175000
Product liability 125000 75000
Product recalls 400000 200000
Retesting 250000 200000
Rework 325000 100000
Testing 50000 150000
Training 75000 100000
Warranty repairs 150000
75000
Required:
1. Prepare cost of quality report that classifies each of the cost under the
proper cost of quality.
2. Indicate whether the costs are increasing or decreasing and by how much?
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
ENVIRONMENT
SUPPORTING ANALYSIS
Increase
Costs Categories 2005 2006 (Decrease)
Prevention costs:
Training P 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
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.
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
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:
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:
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
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
ENVIRONMENT
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.
SUPPORTING ANALYSIS:
PROBLEM 3:
The management of Boogie Company thinks that total costs of quality can be
reduced by increasing expenditure in certain key costs of quality categories. The
following costs of quality have been identified by management.
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.
SUPPORTING ANALYSIS:
Requirement 1
Internal External
Costs of Quality Prevention Appraisal Failure Failure
Rework P 6,000
Recalls P15,000
Reengineering
efforts P 9,000
Repair 12,000
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
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
ENVIRONMENT
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.
SUPPORTING ANALYSIS:
Requirements 1 & 2
Bali Company
Cost of Quality Report
For 2005 and 2006
Requirement 3
PROBLEM 5:
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
ENVIRONMENT
CASE STUDY:
CS1:
DI NA MULI Industries manufactures electronic testing equipment. DI NA MULI also
installs the equipment at customer’s sites and ensures that it functions smoothly.
Additional information on the Manufacturing and installation departments is as
follows (capacities are expressed in terms of the number units of electronic testing
equipment):
DI NA MULI manufactures only 300 units per year because the installation
Department has only enough space to install 300 units. The equipment sells for
P40,000 per unit (installed) and has direct materials costs of P15,000. All costs
other than direct materials costs are fixed.
REQUIREMENTS:
1 DI NA MULI is considering hot to motivate workers to improve their
productivity(output per hour). One proposal is to evaluate and
compensate workers in the Manufacturing and installation departments
on the basis of their productivities. Is the new proposal a good idea?
2 DI NA MULI’s engineers have found a way to reduce equipment
manufacturing time. The new method would cost an additional P50 per
unit and would allow DI NA MULI to manufacture 20 additional units a
year. Should DI NA MULI implement the new method?
3 A new installation technique has been developed that will enable DI NA
MULI’s engineers to install 10 additional units of equipment a year. The
new method will increase installation costs by P50000 each year. Should
DI NA MULI implement the new technique?
4 DI NA MULI’s designers have proposed a changed in direct materials that
would increase direct materials costs by P2000 per unit. This change
would enable DI NA MULI to install 320 units of equipment per year. If
Columbia makes the change, it will implement the new design on all
equipment sold. Should DI NA MULI use the new design?
SUPPORTING ANALYSIS:
1. Motivating installation workers to increase productivity is worthwhile
because installation is bottleneck operation, and any increase in
productivity at the bottleneck will increase throughput contribution.
On the other hand, motivating workers in the manufacturing
department to increase productivity is not worthwhile. Manufacturing
is not a bottleneck operation, so any increase in output will result only
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
ENVIRONMENT
CS2:
CHAPTER 26 MANAGING ACCOUNTING IN A CHANGING
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
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