BEC 1.2

Question 1

Explain the purpose of a balanced scorecard

Answer 1

Framework used for implementing strategy that converts an entity’s strategic objectives into a set of performance measures

Question 2

What are the total factor productivity ratios (TFP) and partial productivity ratios (PPR)?

Answer 2

TFP and PPR are 2 types of productivity measures used as external benchmarks.

Total factor productivity ratios (TFPs) reflect the quantity of all output produced relative to the costs of all inputs used.

Partial productivity ratios (PPRs) reflect the quantity of output produced relative to the quantity of individual inputs used.

Question 3

What is a control chart and how is it used as a statistical quality-control tool?

Answer 3

A control chart is used to plot a comparison of actual results by batch or other suitable constant internal to an acceptable range.

Control charts effectively indicate whether there is a trend toward improved quality conformance or deteriorating quality conformance

Question 4

How are Pareto diagrams and fishbone diagrams used to identify quality-control issues (defects)?

Answer 4

A Pareto diagram identifies the frequency (highest to lowest) of defects or problems that demand management attention

Once intially identified in the Pareto diagram, the individual defects/problems are further analyzed by cause and effect in a fishbone diagram

Question 5

What are the characteristics of effective performance measures?

Answer 5

Effective performance measures:

1. Relate to the goals of the organization
2. Balance long- and short- term issues
3. Reflect mgmt of key activities sometimes referred to as critical success factors in the balanced scorecard
4. Are under the control or influence of the employee
5. Are understood by the employee
6. Are used to both evaluate and reward the employee or otherwise constructively influence behavior
7. Are objective and are easily measured.
8. Are used consistently

Question 6

Define transaction marketing

Answer 6

Customers are attracted for the sake of a single sale

Question 7

Define interaction-based relationship marketing

Answer 7

When customers are attracted for the purpose of a sale that serves as the basis for an ongoing relationship

Question 8

Define database marketing

Answer 8

Information is gathered on customers and the information from that database is used to segment customers into target markets for a more effective selling effort

Question 9

Identify three types of compensation generally available

Answer 9

1. Fixed salary
2. Bonuses
3. Perks

Question 10

List 5 issues related to incentive compensation

Answer 10

1. Time horizon - Does the plan exclusively emphasize current reward for current performance or does it promote ongoing performance?
2. Fixed vs. variable bonuses - Is the incentive pay formula driven or subjective?
3. Stock vs. accounting-based performance valuation - Is the measurement of performance based on accounting data or equity values?
4. Local vs. company-wide performance - Does the incentive reward for local (division) or company-wide performance?
5. Cooperative vs. competitive plans - Does the incentive reward group or individual accomplishment?

Question 11

Name the 3 components of produc cost and identify which of these components are categorized as prime cost and conversion costs

Answer 11

Direct materials (DM)
Direct labor (DL)
Manufacturing overhead (Mfg Ovhd)

Prime Cost = DM + DL

Conversion Costs = DL + Mfg Ovhd

Question 12

Distinguish between product and period cost

Answer 12

Product Costs: Inventorial - become COGS when sold

Period Costs: Expensed in period incurred as they are not inventoriable

Question 13

Name the 3 most frequent objectives of an entity’s cost accounting system(s).

Answer 13

1. Product costing (inventory and cost of goods manufactured and sold).
2. Efficiency measurements (comparison to standards)
3. Income determination (profitability)

Question 14

Determine the traditional overhead rate

Answer 14

Traditional overhead rate = Budgeted mfg ovhd costs / Est. cost driver

Question 15

Define relevant range

Answer 15

Range of volume for which the assumptions of the cost driver (i.e., linear relationship with the costs incurred) are valid and in which the actual value of the cost driver exist

Question 16

Compare and contrast the direct method and step-down method for allocating service costs in activity-based costing.

Answer 16

Under direct method - each service dept’s total costs are directly allocated to the production departments without recognizing that the service departments themselves may use the services from other service departments

Under step-down method - sequential approach is used to allocate service department costs to production departments as well as other service departments

Question 17

With joint products, what is the treatment of costs incurred before the split-off point?

Answer 17

Costs incurred before the split-off point are sunk costs, not relevant to further processing decisions

Joint costs are allocated by an arbitrary means such as by unit volume relationships or relative net realizable values at the split-off point

Question 18

What is the formula for cost of goods manufactured?

Answer 18

(B)eginning WIP (beginning)
(A)dd Add: DM + DL + Mfg Ovhd
(S)ubtract Less: WIP (ending)
(E)nding COG Manufactured

Question 19

What is the formula for COGS?

Answer 19

Manufacturing entity:
Finished goods (beg)
\+ COG manufactured
- Finished goods (ending)
= COGS

Alternative formula
Beginning inventory
\+ Purchases
- Ending inventory
=COGS

Question 20

What is the difference between job and process costing?

Answer 20

Job Costing
With job costing, each unit/batch is unique and easily identifiable costs are determined by each job
Ex: We print your resume in our print shop

Process Costing:
With process costing, continuous mass-produced identical units are manufactured, and costs are determined by activity/process/department
Ex: We process crude oil into gasoline

Question 21

What is an equivalent unit and how are the costs applied?

Answer 21

Used in process costing, equivalent units are fully completed and partially completed units during the period

In applying costs, determine the units, then costs, then apply the cost flow assumption for cost per unit and allocation of costs

Question 22

How are equivalent units and total cost calculated using the FIFO method?

Answer 22

Equivalent units =
(Beginning WIP x % to be completed)
+ Units started and completed
+ (Ending WIP x % completed)

Total costs = Cost incurred during the current period

Question 23

How are equivalent units and total cost calculated using the weighted average method?

Answer 23

Equivalent units = Units completed and transferred out + (Ending WIP x % completed)

Total costs = Costs in beginning WIP + Costs incurred during the current period

Question 24

Name the types of spoilage and indicate the appropriate accounting treatment

Answer 24

Abnormal: Charge to income of the current period

Normal: Increase the cost of the product produced (i.e., inventory)

Question 25

Define activity-based costing (ABC)

Answer 25

ABC is a costing theory that assumes that resource consuming activities cause costs and that costs should be assigned to benefiting products based on the activities performed and the resources consumed.

ABC systems often divide costs into multiple activity centers and identify the activities that drive the costs in each cost center. Costs are then assigned based on the volume of cost drivers at the determined rate per cost driver.