Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CPA: BEC > IX - Performance Measures > Flashcards

IX - Performance Measures Flashcards

1
Q

What four perspectives are included in Balanced Scorecard?

A

Financial / Customer / Internal Business Processes / Learning and Growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why was Balanced Scorecard created?

A

To measure Performance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are Strategy Maps?

A

Diagrams of Strategic Cause and Effect Relationships.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is a Strategic Initiative?

A

A plan to achieve goals.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What measures are used under Value-Based Management?

A 
Return on Investment
Residual Income
Spread
Economic Value Added
Free Cash Flow
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How is Return on Investment (ROI) calculated?

A

ROI : Return / Investment

Example: You Invest $100 to buy a machine that generates $60 in Operating Income

$60 / $100 : 60% ROI

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How is Residual Income calculated?

A

Operating Income - (Required Rate of Return x Invested Capital) : Residual Income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is another name for Required Rate of Return (RROR)?

A

RROR is also called ‘Cost of Capital’

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is Weighted Average Cost of Capital (WACC)? How is it calculated?

A

Cost of Capital is the weighted average of the interest rates you pay for your Capital.

Includes Debt and the Rate of Return your Equity Shareholders expect

Example: 45% of your Capital is supported by debt and has an interest rate of 9%. 55% of your Capital is supported by equity and shareholders expect a ROR of 12%

Your Cost of Capital is: (.45 x .09) + (.55 x .12) : 10.65%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How is Spread calculated?

A

Spread : ROI - Cost of Capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the primary point of Economic Value Added? How is it calculated?

A

Investments should exceed costs- with an emphasis on stockholder value.

Economic Value Added : Operating Income After Tax - (Net Assets x WACC)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How is Free Cash Flow calculated?

A 
Operating Income After Tax
\+ Depreciation & Amortization
- Capital Expenditures
- Change in Net Working Capital
\: Free Cash Flow
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is measured by Six Sigma?

A

It measures a product versus its quality goal.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the Asset Turnover Ratio?

A

Sales / Average Assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What does the Current Ratio tell us? How is it calculated?

A

Can the company pay their short-term liabilities?

Current Ratio : Current Assets / Current Liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What does the Debt to Equity Ratio tell us? How is it calculated?

A

How is the company financing its capital?

Debt to Equity Ratio : Total Debt / Total Equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What does the Debt to Total Assets ratio tell us? How is it calculated?

A

What proportions of the company’s assets are encumbered with debt?

Debt to Total Assets : Total Liabilities / Total Assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What does Gross Margin % tell us? How is it calculated?

A

How profitable is the product after COGS?

Gross Margin : Gross Profit / Net Sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What does Operating Profit Margin tell us? How is it calculated?

A

How profitable is the product after all expenses (except interest and taxes)?

Operating Profit Margin : Operating Profit / Net Sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How is Times Interest Earned calculated and what does it mean?

A

Can the company make their interest payments?

Times Interest Earned : Earnings Before Tax & Interest / Interest Expense

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What does Return on Assets tell us? How is it calculated?

A

What % return are the assets generating?

Return on Assets : Net Income (net of interest & taxes) / Average Total Assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

How is Market/Book ratio calculated?

A

Market Value of Common Stock / Book Value of Common Stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is Inventory Turnover and how is it calculated?

A

How quickly does inventory get sold?

Inventory Turnover : COGS / Average Inventory

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is the Quick Ratio and how is it calculated?

A

It measures short-term liquidity- and only includes assets that are quickly available (i.e. not inventory)

Quick Ratio : (Current Assets - Inventory) / Current Liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is Average Collection Period- and how is it calculated?

A

How many days does it take the company to collect payment on A/R?

Average Collection Period : Average AR / Average Sales Per Day

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is an Internal Failure?

A

Products have quality defects- but are caught BEFORE they leave the warehouse.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is an External Failure?

A

Product reaches the customer- but they are not satisfied with the quality of the product.

This includes recalls.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is Appraisal Cost?

A

Quality control- testing & inspection costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

SWOT analysis includes considerations of what four strategic dimensions?

  • Synergies, willingness, openness, and targets
  • Strengths, weaknesses, opportunities, and targets
  • Synergies, weaknesses, openness, and threats
  • Strengths, weaknesses, opportunities, and threats
A

Strengths, weaknesses, opportunities, and threats
SWOT analysis is a process of environmental scanning involving an analysis and assessment of the dimensions of strengths, weaknesses, opportunities, and threats.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

V Inc. has developed and patented a new laser disc reading device that will be marketed internationally. Which of the following factors should Vince consider in pricing the device? (any combination of the 3)
I. Quality of the new device.
II. Life of the new device.
III. Customers’ relative preference for quality compared to price.

A

All 3
All three factors are relevant in setting the price. Consider setting price for cars. The quality of the car has a direct effect on price. Perceived differences in quality are one of the most important factors by which firms set prices for different vehicles. The life of the new item is the length of time the firm has to recoup its initial investment in researching and developing the product, marketing it, and any retooling required (most of which are fixed costs). The life can also be defined as the number of units or total sales expected of the product. The longer the life (or greater the total sales expected), the lower the price can be, all other factors being the same. How customers trade off price and quality is also an important factor. If price is by far the more important factor, then increases in quality that cause the price to increase significantly will not cause sales increases. On the other hand, in the high-end auto market, some customers are willing to pay large sums to obtain significant quality increases. Thus, customer preferences for quality relative to price can affect the pricing of the product.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Which of the following steps in the strategic planning process should be completed first?

  • Translate objectives into goals.
  • Determine actions to achieve goals.
  • Develop performance measures.
  • Create a mission statement.
A

Create a mission statement
The creation of the mission statement, the purpose of the organization, is the first step in the strategic planning process. All strategies should be directly derived from and consistent with the mission statement.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Which of the following topics is the focus of managerial accounting?

  • Financial statements and other financial reports.
  • Historical cost principles.
  • The needs of creditors.
  • The needs of the organization’s internal parties.
A

The needs of the organization’s internal parties.
The most important purpose of management accounting is to provide enterprise optimization by providing decision support to meet the needs of the organization’s internal parties.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

A cost leadership strategy, in addition to focusing on the company’s ability to sell a large volume of low-cost products, is often aided by all of the following characteristics except

  • Proprietary production technology.
  • Access to low-cost production inputs (raw materials, labor, etc.).
  • More highly desirable product features.
  • Access to low-cost capital.
A

More highly desirable product features.
Having more highly desirable product features is a characteristic of a differentiation strategy, not a cost leadership strategy.

34
Q

A company has a tax rate of 40%. Information for the company is as follows:
Amount Before-tax Cost
Mortgage bonds $1,200,000 7.2%
Common stock $3,800,000 10%
What is the weighted average cost of capital (WACC)? (%)

A

8.64%

The calculation is ($1.2M / $5M) (.072) (1 - .4) + ($3.8M / $5M) (.1).

35
Q

Related to the CFROI metric, “the required annual cash investment needed to replace fixed assets” is the definition of what?

  • Free cash flow.
  • Economic depreciation.
  • Economic value added (EVA).
  • Cash flow return on investment (CFROI).
A

Economic depreciation

The required annual cash investment needed to replace fixed assets is the definition of economic depreciation.

36
Q

Wexford Co. has a subunit that reported the following data for year 1:
Asset (investment) turnover 1.5 times
Sales $750,000
Return on sales 8%
The imputed interest rate is 12%. What is the division residual income for year 1? ($)

A

$0
To solve for residual income (RI), you must first solve for assets (investment) and income. Since an asset turnover of 1.5 is sales/investment and sales is $750,000, we use $750,000 / x = 1.5, where x = investment. Thus, investment is $500,000. Since a return on sales of 8% is profit/sales and sales is $750,000, we use x / $750,000 = 8%, where x = income. Thus, income is $60,000. Now, RI = income less the rate given at 12% multiplied by the investment. Thus, RI is 0 = $60,000 - .12 ($500,000).

37
Q

Which of the following accurately reflects prevailing thought processes regarding the new value based metrics?

  • Accrual-based metrics are discredited.
  • Cost of capital is increasingly ignored.
  • Shareholder value is not typically viewed as being as important as achieving strategic objectives.
  • All of the above reflect prevailing thought processes regarding the new value based metrics.
A

Accrual-based metrics are discredited

Since they are not designed to reflect true economic substance, but to meet other external reporting goals.

38
Q 
The following information pertains to Quest Co.'s Gold Division for 2004:
Sales	$311,000
Variable cost	250,000
Traceable fixed costs	50,000
Average invested capital	40,000
Imputed interest rate	10%
Quest's return on investment was: (%)
A

27.5%
ROI = division income/average invested capital = ($311,000 - $250,000 - $50,000)/$40,000 = .275
Traceable fixed costs are deducted in determining division income. Corporate fixed costs would not be deducted. The imputed interest rate is not relevant to the question.

39
Q

A co’s target gross margin is 40% of the selling price of a product that costs $89 per unit. The product’s selling price should be:

  • $124.60.
  • $142.40.
  • $148.33.
  • $222.50.
A

148.33
If P = price and C = cost, and cost is $89, target gross margin is .4P, and P - C = .4P. Thus, we solve for P in the equation P - $89 = .4P to find P = $148.33.

40
Q

Brewster Co. has the following financial information:
Fixed costs $20,000
Variable costs 60% (of sales)
Sales price $50
What amount of sales is required for Brewster to achieve a 15% return on sales? ($)

A

$80k
This answer follows a contribution margin income statement format involving a 15% markup on sales, solves for quantity, (i.e., $50Q - 0.6(50Q) - $20,000 = 0.15(50Q)), and then multiplies quantity by price ($50 x 1,600 = $80,000). Note: variable costs are 60% of sales, not 60% of total costs.

41
Q

Corp B has an operating income of $400 and total assets of $1,600. The company’s required rate of return is 10%. Corp B’s residual income would be which of the following amounts?

  • $40.
  • $240.
  • $400.
  • $640.
A

$240
Residual income is calculated as operating income less the investment (total assets here) multiplied by the required rate of return. Thus, Division B’s residual income is $400 - .1($1,600) = $240.

42
Q

The target capital structure of T Co. is 50% debt, 10% preferred equity, and 40% common equity. The interest rate on debt is 6%, the yield on the preferred is 7%, the cost of common equity is 11.5%, and the tax rate is 40%. T does not anticipate issuing any new stock. What is T’s weighted average cost of capital? (%)

A

7.1%
The calculation of the weighted average cost of capital (WACC) involves proportional weighting for debt and equity with the debt figure reduced for deductible taxes. Thus, the cost of debt is 1.8% = 50% (6%) (1 - .4); the cost of owners’ equity is split for the preferred 0.7% = 10% (7%); and the common 4.6% = 40% (11.5%). Thus, the WACC is 7.1% = 1.8% + 0.7% + 4.6%.

43
Q

To measure inv mgmt performance, a company monitors its inventory turnover ratio. Listed below are selected data from the company’s accounting records:
Current year Prior year
Annual sales $2,525,000 $2,125,000
Gross profit percent 40% 35%
Beg finished goods inv for the current year was 15% of the prior year’s annual sales, and ending finished goods inventory was 22% of the current year’s annual sales. What was the company’s inventory turnover at the end of the current period? (#)

A

3.47
Inventory turnover is calculated by dividing the cost of goods sold by the average inventory. Cost of goods sold = $2,525,000(1 - .4) = $1,515,000; average inventory is [.15(2,125,000) + .22(2,525,000)] / 2 = $437,125. Thus, inventory turnover = $1,515,000 / $437,125.

44
Q

How is contribution margin (CM) different from gross margin (GM)?

  • CM equals sales less cost of goods sold; GM equals sales less total expenses.
  • CM equals sales less variable costs; GM equals sales less cost of goods sold.
  • CM classifies cost by manufacturing v. non-manufacturing; GM classifies cost by variable and fixed cost behavior.
  • CM is used for external reporting; GM is used internally for cost-volume-profit analysis.
A

CM equals sales less variable costs; GM equals sales less cost of goods sold.
CM classifies costs by behavior and is used internally. CM = sales less variable costs; GM equals sales less cost of goods sold.

45
Q

Which metric is often used as an alternative to ROI and is generally defined as “operating Income less (the required rate of return multiplied by invested capital)?”

  • Times interest earned.
  • Economic value added.
  • Cash value added.
  • Residual income.
A

Residual income

Residual income = operating income - required rate of return (invested capital).

46
Q

Galax, Inc. had an operating income of $5,000,000 before interest and taxes. Galax’s net book value of plant assets on January 1 and December 31 were $22,000,000 and $18,000,000, respectively. Galax achieved a 25% ROI for the year, with an investment turnover of 2.5. What were Galax’s sales for the year?

A

$50k

ROI = (income / sales) * asset turnover; and ROI = 25% = $5M / sales * 2.5. Thus, solving for sales, the result is $50M.

47
Q

The DuPont method of ROI uses sales to analyze what two elements of return separately?

  • Income and assets.
  • Income and common stockholders’ equity.
  • Gross sales and net sales.
  • Income and cost of capital.
A

Income and Assets
Income and assets are related to sales to determine return on sales and the efficiency with which assets were used to generate those sales.

48
Q

North Bank is analyzing B Corp.’s financial statements for a possible extension of credit. B’s quick ratio is significantly better than the industry average. Which one of the following factors should North consider as a possible limitation of using this ratio when evaluating B’s creditworthiness?
A/R (Y/N)
Marketable Securities (Y/N)
Inventory (Y/N)

A

Yes: A/R, Marketable Securities
No: Inventory
The quick ratio (also called the acid-test ratio) measures the relationship between current assets that are cash or can be converted to cash quickly and the total of current liabilities.
Current assets that can be converted to cash quickly include (in addition to cash) accounts receivable and marketable securities (expected to be sold in the near term). Inventories are not included in the quick ratio because, normally, they cannot be converted to cash quickly.
By excluding inventories (and other current assets that cannot be converted to cash quickly, e.g., prepaid assets), the measure of assets available to pay current liabilities in the quick ratio is more conservative than the measure of assets used in the working capital (or current) ratio; thus, the quick ratio is also called the acid-test ratio.

49
Q

How is strategic risk best managed?

  • Focusing on business continuity needs.
  • Focusing on hedging of commodities contracts.
  • Focusing on portfolio and price risk.
  • Focusing on rigorous forecasting and planning.
A

Focusing on rigorous forecasting and planning.
Strategic risk involves the possibility of the failure of the basic action plan that guides a company to achieve its mission. Thus, rigorous long-term forecasting and planning are necessary to mitigate this risk.

50
Q

Which of the following types of risk are best addressed with insurance?

  • Peril or hazard.
  • Speculative risks.
  • Price risk.
  • Portfolio risk.
A

Peril or hazard.
Insurance is specifically designed to reduce or eliminate peril or hazard risk where a specific type of risk of loss is involved (i.e., pure risk).

51
Q

Why is cost avoidance a faster way to increase profits than to increase revenue?

  • Cost avoidance is part of a well thought out strategic approach.
  • Increasing revenue often results in at least some proportional cost increases.
  • Cost avoidance targets committed costs.
  • Efforts to increase revenue relate to committed costs only.
A

Increasing revenue often results in at least some proportional cost increases.
Avoiding costs provides a direct and immediate effect on profits, while increasing revenue often results in at least some proportional cost increases as well.

52
Q

Which of the following terms describe or are consistent with systematic risk?

  • Portfolio risk.
  • Market risk.
  • Diversifiable risk.
  • Company-specific risk.
A

Market risk
Systematic risk is also known as market risk or nondiversifiable risk and is associated with large-scale economic events or natural disasters and typically affects all companies to some degree.

53
Q

Which of the following types of risk are best addressed with hedging?

  • Strategic and operating risk.
  • Foreign currency exchange.
  • Disaster recovery.
  • Liquidity.
A

Foreign currency exchange.
Hedging offsets exposure to future price fluctuations by locking in a given price in the future. Thus, foreign currency exchange or commodities would provide examples where hedging would be an appropriate risk management technique.
Note: Strategic and operating risk are best controlled by rigorous forecasting and planning, optimizing operating leverage, and cost and revenue control.

54
Q

Which of the following best describes lean manufacturing?

  • Making a small number of a high variety of unique products with relatively low-skilled labor.
  • Making a large number of standardized products with highly skilled labor.
  • Making small batches of a high variety of unique products with cross-trained labor.
  • Making a large number of standardized products with relatively low-skilled labor.
A

Making small batches of a high variety of unique products with cross-trained labor.
Lean manufacturing is accurately described as using small batches of a high variety of unique products with highly skilled, cross-trained labor.

55
Q

Which of the following statements correctly describes the structural differences between mass and lean manufacturing?

  • Mass production usually has lower setup times than lean production.
  • Mass production usually has dedicated equipment and highly skilled laborers.
  • Mass production usually has flexible equipment and highly skilled laborers.
  • Mass production usually has higher setup times and dedicated equipment.
A

Mass production usually has higher setup times and dedicated equipment.
Mass production is typically characterized by higher setup times, dedicated equipment, and low-skilled workers with a high degree of specialization. In contrast, lean production is characterized by lower setup times, flexible equipment, and highly skilled, cross-trained workers.

56
Q

What tools does Six Sigma commonly use to achieve quality control?

  • Demand flow technology tools (e.g., continuous flow planning).
  • Tools common to TQM (e.g., control charts).
  • Constraint management optimization tools (e.g., capacity analysis).
  • Push-model tools (e.g., forecasting using regression).
A

Tools common to TQM (e.g., control charts).
Six Sigma is very similar to total quality management (TQM) and uses TQM tools such as control charts, run charts, pareto histograms, and Isikawa (fish-bone) diagrams.

57
Q

Jago Co. has two products that use the same manufacturing facilities and cannot be subcontracted. Each product has sufficient orders to utilize the entire manufacturing capacity.
For short-run profit maximization, Jago should manufacture the product with the
-Lower total manufacturing costs for the manufacturing capacity.
-Lower total variable manufacturing costs for the manufacturing capacity.
-Greater gross profit per hour of manufacturing capacity.
-Greater contribution margin per hour of manufacturing capacity.

A

Greater contribution margin per hour of manufacturing capacity.
This is a short run situation. In the long run, the firm should expand to take advantage of the market for its products. But given that capacity cannot be increased in the short run, the product that produces the highest contribution margin per hour should be produced. There are only so many hours of production capacity available. Maximizing the contribution margin per hour also maximizes profits and cash flow, as fixed costs remain unchanged.

58
Q

What is the objective of the demand flow approach?

  • To link process flows and manage them based on customer demand.
  • To mathematically link “push-based” inventory features.
  • To mathematically facilitate constraint management.
  • To mathematically assist disruptive flow management in forecasting.
A

To link process flows and manage them based on customer demand.
The objective of the demand flow or demand flow technology (DFT) approach is to link process flows and manage those flows based on customer demand.

59
Q

JIT Production Process

A
  1. Flexible manufact environ
  2. Skilled, flexible workforce
  3. Teamwork
  4. Multitask
  5. Low/0 rate of defects
60
Q

Pull vs Push production?

A

JIT uses PULL production, production schedule determined by actual sale of goods.
Push production demand is forecasted and then production level is chosen

61
Q

Which of the following techniques effectively measures improvements in product quality as a result of internal failure costs?

  • Inspection of in-process goods.
  • Recording the number of products returned over time.
  • Tracking the number of products reworked.
  • Tracking warranty expenses over time.
A

Tracking the number of products reworked.

The item “Tracking the number of products reworked” is the only choice given that reflects an internal failure.

62
Q

Which changes in costs are most conducive to switching from a traditional inventory ordering system to a just-in-time ordering system? (increase or decrease)
1 Cost per purchase order
2 Inventory unit carrying cost

A

Cost per purchase order - down, Inv unit carry cost - up
A JIT system is designed to reduce inventory carrying costs by ordering more frequently, but in lower quantities, so that inventories are kept to a minimum. When inventory holding costs (lost interest, security costs, warehousing costs) are rising, there is an incentive to reduce inventories and instead order inventories only when they are needed (and so they arrive just in time for use). In addition, declines in the cost of purchasing make the JIT system even more appropriate. A JIT system orders smaller numbers of units per order, but orders more frequently to avoid inventory build up. Thus, JIT increases total order costs. With decreasing order costs, the total ordering costs is kept to a reasonable level. Furthermore, the decrease in holding costs from holding less inventory more than covers the increased cost of ordering more frequently.

63
Q 
As part of a benchmarking process, a company's costs of quality for the current month have been identified as follows:
Employee training	$20,000
Product recalls	8,000
Scrap	4,500
Quality inspectors	48,000
Preventive maintenance	19,500
Supplier education expense	17,500
Materials inspection expense	60,000
Processing product returns	2,500
What amount is the company's prevention cost for the current month?
A

$57,000
Prevention costs are those that try to include proactive efforts to prevent defects before the products are produced. In this problem these include:
Employee training, preventive maintenance, and supplier education expense for a total of $57,000.

64
Q

In a quality control program, which of the following is (are) categorized as internal failure costs? (Choose 1)
I. Rework.

II. Responding to customer complaints.

III. Statistical quality control procedures.

A

I. Rework
An internal failure cost is incurred when a product that does not conform to its design specifications is detected before shipment to customers. The cost to rework items that do not meet design specifications is incurred before the items are shipped and qualify as internal failure costs. Other internal failure costs include spoilage, scrap, and breakdown maintenance.
Responding to customer complaints occurs after items are shipped is not included in internal failure costs. The cost of receiving and responding to customer complaints is a component of external failure costs.

65
Q

First Year Second Year
Prevention $45,000 $60,000
Appraisal 25,000 35,000
Internal failure 80,000 50,000
External failure 75,000 65,000
Which of the following conclusions can we draw about this quality program?
-Failure, conformance costs decreased by $40,000 while nonconform costs increased by $25,000.
-Success, conformance costs decreased by $40,000 and nonconform costs increased by $25,000.
-Failure, conformance costs increased by $25,000 while nonconform costs decreased by $40,000.
-Success, conformance costs increased by $25,000 while nonconform costs decreased by $40,000.

A

Success, because conformance costs increased by $25,000 while nonconformance costs decreased by $40,000.
This answer is based on two parts: (1) the determination of success or failure, and (2) the amount of conformance costs v. non-conformance costs. Success is defined by minimizing total costs (costs decreased by $15,000). Conformance costs are prevention and appraisal, and non-conformance costs are internal and external failure.

66
Q

Which quality definition can be described as “meeting or exceeding the needs and wants of customers?”

  • Manufacturing quality.
  • Customer quality.
  • Quality of design.
  • Quality of conformance.
A

Quality of design

“Meeting or exceeding the needs and wants of customers” is the definition of the quality of design.

67
Q

Bell Co. changed from a traditional manufacturing philosophy to a just-in-time philosophy.
What are the expected effects of this change on Bell’s 1) inventory turnover and 2) inventory as a percentage of total assets reported on Bell’s balance sheet? (increase/ decrease)

A

Inv turnover - up, Inv percentage - down
JIT system purchases inventory only when necessary. Thus, much less inventory must be maintained at any one time.
Inventory turnover = cost of goods sold/average inventory.
Inventory percentage = ending inventory balance/total assets. With lower amounts of inventory on hand at any time, inventory turnover INCREASES because its denominator decreases, and inventory percentage DECREASES because its numerator decreases by a greater percentage than does its denominator. Inventories turnover much more frequently because the quantity on hand is so small and inventory is sold soon after it is acquired or produced.

68
Q

As a consequence of finding a more dependable supplier, Dee Co. reduced its safety stock of raw materials by 80%.
What is the effect of this safety stock reduction on Dee’s economic order quantity?
A. 80% decrease.
B. 64% decrease.
C. 20% increase.
D. No effect.

A

No effect
Safety stock is a buffer for variations in demand and lead-time for the delivery of material. Safety stock affects the reorder point, but does not enter into the quantity to be ordered.

69
Q

Nonfinancial performance measures are important to engineering and operations managers in assessing the quality levels of their products. Which of the following indicators can be used to measure product quality? (pick in any combination)
I. Returns and allowances.
II. Number and types of customer complaints.
III. Production cycle time.

A

I and II only
Only returns and allowances and customer complaints are measures of product quality. Returns and allowances are direct measures of the quality of the product; a high frequency of returns and allowances indicates lower product quality. Customer complaints about product quality are an important input to firms about the quality of their product. However, production cycle time, also called manufacturing lead time, is the time from setup to the finished good. Cycle time is relevant to determining the optimal production system, but is not directly concerned with product quality. Longer waiting times in the manufacturing setting may indicate the need to increase the number of machines, but again, there is no direct tie-in to quality.

70
Q

The economic order quantity formula assumes that

  • Periodic demand for the good is known.
  • Carrying costs per unit vary with the quantity ordered.
  • Costs of placing an order vary with the quantity ordered.
  • Purchase costs per unit differ due to quantity discounts.
A

Periodic demand for the good is known.
The formula for economic order quantity is the square root of the following expression:
2 X annual demand X cost to place an order
__________________________________
carrying cost per unit per year
Annual demand (period demand) is part of the formula. Purchase costs per unit and order costs per order must remain constant. Safety stock affects the order variations in point, but not the order quantity.

71
Q

The benefits of a just-in-time system for raw materials usually include

  • Elimination of nonvalue-adding operations.
  • Increase in the number of suppliers, thereby ensuring competitive bidding.
  • Maximization of the standard delivery quantity, thereby lessening the paperwork for each delivery.
  • Decrease in the number of deliveries required to maintain production.
A

Elimination of nonvalue-adding operations.
A JIT system seeks to reduce those activities that do not increase the value of the product to the customer. For example, the time required to move materials between departments is reduced and paperwork is minimized. Operations are streamlined and simplified. JIT is much more than the minimization of inventories.

72
Q

Under the balanced scorecard concept, employee satisfaction and retention are measures used under which of the following perspectives?

  • Customer.
  • Internal business.
  • Learning and growth.
  • Financial.
A

Learning and growth
Measures of learning and growth are related to the quality, vitality, and productivity of the workforce and include such things as employee turnover, new product development, product improvements, employee satisfaction levels, and personnel training and education.

73
Q

Which measures would be useful in evaluating the performance of a manufacturing system? (any combination of the 3)
I. Throughput time.
II. Total setup time for machines/Total production time.
III. Number of rework units/Total number of units completed.

A

All 3
All measures are relevant to the evaluation of how a manufacturing system is performing. Throughput time is the total time required for an item to make its way through the manufacturing system. The ratio of setup time to total production time reflects the adaptability of the system to required changes in production capability. If this ratio is excessive, the firm is unable to alter its product to meet changing customer demand. The ratio of rework to total units is a measure of quality. A lower ratio indicates higher quality and less interruption to the production process.

74
Q

The management of a company would do which of the following to compare and contrast its financial information to published information reflecting optimal amounts?

  • Budget.
  • Forecast.
  • Benchmark.
  • Utilize best practices.
A

Benchmark

Benchmarking provides a relevant comparison when trying to achieve the optimal outcome by comparing to others.

75
Q

Which of the following balanced scorecard perspectives examines a company’s success in targeted market segments?

  • Financial.
  • Customer.
  • Internal business process.
  • Learning and growth.
A

Customer

The customer perspective evaluates the organization’s success in targeted customer and market segments.

76
Q

When using PERT, project completion times are measured by a pessimistic, optimistic, and most probable estimate…

  • And assigning equal weight to each of the estimates to calculate an average.
  • And assigning a weight of one for the pessimistic and optimistic estimates and a weight of two for the most probable estimate and dividing by four.
  • And assigning a weight of one for the pessimistic and optimistic estimates and a weight of four for the most probable estimate and dividing by six.
  • And assigning weights for the estimates based on the judgment of the project manager as to the probabilities of each of the outcomes.
A

And assigning a weight of one for the pessimistic and optimistic estimates and a weight of four for the most probable estimate and dividing by six.
Project completion time is measured by assigning a weighting of one for each of the optimistic and pessimistic estimates, a weighting of four for the most probable estimate, adding them together, and then dividing by six.

77
Q

Which type of project risk is related to managing people, time, cost restrictions, and the interrelationships among activities?

  • Planning risk.
  • Implementing risk.
  • Monitoring risk.
  • Forecasting risk.
A

Implementing risk
Managing people, time, cost restrictions, and the interrelationships among activities is a function of implementing risk.

78
Q

When using PERT or CPM, activity slack is calculated as

  • The maximum amount of time that an activity can be delayed without delaying the entire project.
  • The difference between the estimated activity time and the actual time once the actual completion time is known.
  • The extra time the project manager adds to the most probable activity time estimate to ensure that the completion time is met.
  • The time difference between the shortest and longest paths in the network.
A

The maximum amount of time that an activity can be delayed without delaying the entire project.
Slack time is always calculated as the maximum amount of time that an activity can be delayed without delaying the entire project.

79
Q

The process of adding resources to shorten selected activity times on the critical path is called

  • Work breakdown structuring (WBS).
  • Activity-resource-trading (ART).
  • Accelerating.
  • Crashing.
A

Crashing

The process of adding resources to shorten selected activity times on the critical path is called “crashing.”

80
Q

Which of the following roles is typically taken on by a project team member?

  • Uses unique skills cooperatively to achieve a common outcome.
  • Provides temporary direct supervision.
  • Behaves as the customer.
  • Responsible for accomplishing the outcome within budget.
A

Uses unique skills cooperatively to achieve a common outcome.
In the context of project management, using unique skills cooperatively to achieve a common outcome is the role of a project team member.

CPA: BEC (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions