Operations Management Flashcards
Wright Corporation planned to produce 3,000 units of its single product, Pactium, during November. The standard specifications for one unit of Pactium include six pounds of materials at $.30 per pound. Actual production in November was 3,100 units of Pactium. The accountant computed a favorable materials purchase price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that:
A. more materials were purchased than were used.
B. more materials were used than were purchased.
C. the actual cost of materials was less than the standard cost.
D. the actual usage of materials was less than the standard allowed.
C. the actual cost of materials was less than the standard cost.
A material purchase price variance is computed:
MPPV = Quantity Purchased × Difference between actual and standard price
If this variance is favorable, the actual material price must have been less than the standard material price.
The resource base figures prominently in performance measures such as return on investment, residual income, and economic value added. The theoretically superior (not necessarily the one most widely used) investment base would be:
A. book value.
B. historical cost.
C. replacement value.
D. All of the answer choices are correct.
C. replacement value.
Replacement cost is a measure of current value. Since revenue and most expenses are also stated in terms of current value, a more consistent performance measure (i.e., return on investment or residual income) will result when all variables are stated in current dollars. Use of replacement or current values assures that a more relevant performance result will be obtained.
Jansen, Inc., pays bonuses to its managers based on operating income. The company uses absorption costing, and overhead is applied on the basis of direct labor hours. In order to increase bonuses, Jansen’s managers may do all of the following, except:
A. defer expenses such as maintenance to a future period.
B. increase production schedules independent of customer demands.
C. decrease production of those items requiring the most direct labor.
D. decrease production of those items requiring the least direct labor.
B. increase production schedules independent of customer demands.
Absorption costing treats fixed costs as product cost and assigns the fixed costs to the units produced. Fixed costs follow the units through work-in-process and finished goods as an inventoriable cost. Non-production costs are recognized when they are incurred. With absorption costing, a manager’s organization will show a higher operating income if some of the goods produced are inventoried since the inventoried goods will carry with them some of the fixed overhead costs that were incurred during the period.
Managers will show lower operating income if they decrease production of those items requiring the most direct labor. The lower operating income results from the fact that a decrease in the production of items that require the most direct labor hours means that each of the items that is produced will have more fixed costs associated with it. The increase in fixed costs per item will reduce operating income.
What is the role of IT in business process re-engineering?
A. It is the major facilitator for new ways of sharing information within a specific organization and outside of the organization.
B. It only creates the systems that work the processes and workflows.
C. It is the minor facilitator for creating the systems that work the process and workflows.
D. It maintains the process management piece of the project.
A. It is the major facilitator for new ways of sharing information within a specific organization and outside of the organization.
IT is the major facilitator for coming up with new forms of working and sharing information within a specific organization, and also with organizations outside of the original organization. They are a key department to keep processes, workflows, and communications working.
he following information pertains to a byproduct called Moy:
Sales in 20X2 5,000 units
Selling price per unit $6
Selling costs per unit 2
Processing costs 0
Inventory of Moy was recorded at net realizable value when produced in 20X1. No units of Moy were produced in 20X2. What amount should be recognized as profit on Moy’s 20X2 sales?
A. $0
B. $10,000
C.$20,000
D. $30,000
A. $0= (5000$6)-(6-2)5000-(2*5000)
Net realizable value equals expected market value (selling price) less any separable processing and selling costs. If byproduct Moy was recorded at net realizable value, the following entry would have been made in 20X1:
Dr. Byproduct Inventory 5,000($6-$2) $20,000
Cr. Work-In-Process $20,000
When the 5,000 units of Moy were sold in 20X2, the sale would be recorded using the following summary journal entry:
Dr. Cash (5,000 x $6) $30,000
Cr. Byproduct Inventory $20,000
Cr. Cash (for selling costs) (5,000 x $2) 10,000
As can be seen, no profit is recognized when byproduct inventory is recorded at net realizable value.
Vested, Inc., made some changes in operations and provided the following information:
Year 2 Year 3
Operating revenue $ 900,000 $1,100,000
Operating expenses 650,000 700,000
Operating assets 1,200,000 2,000,000
What percentage represents the return on investment for Year 3?
A. 28.57%
B. 25%
C. 20.31%
D. 20%
B. 25%=(1100-700)/((1200+2000)/2
Return on investment (ROI) is calculated by dividing the average invested capital into the net income:
Average invested capital is (Operating assets from Year 2 + Operating assets from Year 3) ÷ 2.
Average invested capital = ($1,200,000 + $2,000,000) ÷ 2 = $3,200,000 ÷ 2 = $1,600,000
Net income is Operating revenue - Operating expenses:
Net income = $1,100,000 - $700,000 = $400,000
ROI = Net income ÷ Average invested capital:
ROI = $400,000 ÷ $1,600,000 = 0.25, or 25%
The following information pertains to Base Manufacturing Co.:
Selected Cost Driver Costs
Estimated annual overhead $ 900,000
Estimated annual direct labor cost 1,800,000
Actual direct labor cost for March 160,000
Actual overhead for March 90,000
Base Manufacturing Co.’s applied overhead for March is:
A.$320,000.
B. $75,000.
C. $80,000.
D. $90,000.
C. $80,000=(900/1800)*160
The overhead rate is calculated as follows:
Estimated annual overhead ÷ Estimated annual direct labor = Overhead Rate
$900,000 ÷ $1,800,000 = 0.50
Therefore, overhead is applied at 50% of actual direct labor cost:
$160,000 × 0.50 = $80,000 applied overhead
For a fixed-price proposal, the deliverables due on the contract are not clearly defined. As a result, the potential contractor should:
A. submit the bid because the client’s price seems more than adequate to meet the contract requirements.
B. modify the terms to account for unforeseen difficulties that may arise.
C. build in a cost escalator to adjust for materials price increases during the execution of the contract.
D. wait to bid until the deliverables are clearly defined.
D. wait to bid until the deliverables are clearly defined.
The answer choice “wait to bid until the deliverables are clearly defined” is correct because it is not possible to price a bid correctly if the costs that will be incurred are unknown. Those costs will not be known until the deliverables are clearly defined.
Other answers are incorrect because the costs that will be incurred are unknown.
Which of the following is not considered a step in the planning stage?
A. Create a communications plan
B. Create a schedule
C. Create a quality control plan
D. Monitor the project
D. Monitor the project
The planning stage is the planning of the project and does not go beyond planning. As a result, the planning stage of a project includes the following:
Creating the project plan Creating a schedule Creating a control plan Creating a quality control plan Creating a risk management plan Creating a communications plan Creating a completion plan Monitoring the project occurs at a later stage.
Madi and Molly, Inc., produces lumber, with an average pine tree having 61% of its trunk producing construction grade lumber. Of the remaining 39%, 22% is used for producing wood products for a local furniture manufacturer, and 17% goes to waste. Therefore, Madi and Molly’s lumber usage rate is 83%. In 20X1 the local furniture manufacturer closed, leaving no viable prospects for Madi and Molly to sell the 22% of the wood allocated to the furniture manufacturer. What improvement initiative should Madi and Molly implement to have its lumber usage rate rise back above 80%? You can assume that an increase in the lumber usage rate will replace 100% of the revenue lost from the furniture manufacturer.
A. Lean production
B. Business excellence framework
C. Six Sigma
D. Business process re-engineering
A. Lean production 精益生产
Upon the loss of sales to the furniture manufacturer, Madi and Molly were looking at waste of 39% (100% - 61% for lumber = 39%) as well as a loss in revenue. By implementing lean production tools to achieve 80% conversion of the raw materials (pine trees) into lumber, Madi and Molly would see its revenue stream remain even, while its waste was reduced from 39% to 20%. While it is true that waste was originally 17% before the loss of the furniture client, Madi and Molly’s decision to implement lean production tools must be based upon the current production data, which showed a 39% waste factor.
Managers of the Doggie Food Co. want to add a bonus component to their compensation plan. They are trying to decide between return on investment (ROI) and residual income (RI) as the performance measure they will use. If Doggie adopts the RI performance measure, the relevant required rate of return would be 18%. One segment of Doggie is the Good Treats division, where the manager has invested in new equipment. The operating results from this equipment are as follows:
Revenues $80,000
Cost of goods sold 45,000
General and administrative expenses 15,000
Assuming that there are no income taxes, what would be the ROI and RI, respectively, for this equipment, which has an average value of $100,000?
A. $2,000, 20%
B. 35%, $3,600
C. $3,600, 35%
D. 20%, $2,000
D. 20%, $2,000
20%=(80-45-15)/100
2000=100*18%-(80-45-15)
Residual income (RI) is net income above a minimum desired rate of return on invested capital. The minimum desired net income is found by multiplying the desired rate of return by invested capital. Return on investment (ROI) is net income divided by invested capital.
Revenues of $80,000 less total expenses of $60,000 leaves net income of $20,000. Dividing $20,000 net income by invested capital of $100,000 gives a 20% ROI.
The desired return at 18% on invested capital of $100,000 is $18,000. Subtracting this from the $20,000 net income leaves residual income of $2,000.
Mason Company uses a job order cost system and applies manufacturing overhead to jobs using a predetermined overhead rate based on direct-labor dollars. The rate for the current year is 200% of direct-labor dollars. This rate was calculated last December and will be used throughout the current year. Mason had one job, No. 150, in process on August 1 with raw materials costs of $2,000 and direct-labor costs of $3,000. During August, raw materials and direct labor added to jobs were as follows:
No. 150 No. 151 No. 152
Raw materials $ X $4,000 $1,000
Direct labor 1,500 5,000 2,500
Actual manufacturing overhead for the month of August was $20,000. During the month, Mason completed Job Nos. 150 and 151. For August, manufacturing overhead was:
A. over-applied by $4,000.
B. under-applied by $7,000.
C. under-applied by $2,000.
D. under-applied by $1,000.
C. under-applied by $2,000= (20-(15+5+2.5)*200%)
Actual August overhead $20,000
Overhead applied in August:
Job No. 150 direct labor $1,500
Job No. 151 direct labor 5,000
Job No. 152 direct labor 2,500
Total direct labor $9,000
Times overhead rate x 200%
Equals overhead applied $18,000
Under-applied overhead for August $ 2,000
Three of the basic measurements used by the theory of constraints (TOC) are:
A. gross margin (or gross profit), return on assets, and total sales.
B. number of constraints (or subordinates), number of non-constraints, and operating leverage.
C. throughput (or throughput contribution), inventory (or investments), and operational expense.
D. fixed manufacturing overhead per unit, fixed general overhead per unit, and unit gross margin (or gross profit).
C. throughput (or throughput contribution), inventory (or investments), and operational expense.
The theory of constraints uses three measurements: throughput contribution, investments, and operating costs.
Residual income is a performance evaluation that is used in conjunction with return on investment (ROI) or instead of ROI. In many cases, residual income is preferred over ROI because:
A. residual income is a measure over time while ROI represents the results for a single time period.
B. residual income concentrates on maximizing absolute dollars of income rather than a percentage return as with ROI
C. the imputed interest rate used in calculating residual income is more easily derived than the target rate that is compared to the calculated ROI
D. average investment is employed with residual income while year-end investment is employed with ROI
B. residual income concentrates on maximizing absolute dollars of income rather than a percentage return as with ROI
Residual income is determined by subtracting imputed interest on assets used by a segment or project from the segment or project’s calculated net income. Residual income seeks to maximize absolute dollars of income.
Both residual income and ROI measure results for a single time period and use average investment. The target rate is the same as the imputed interest rate.
Just-in-time production is also called:
A. kaizen.
B. lean manufacturing.
C. activity-based management.
D. backflush costing.
B. lean manufacturing.
Lean manufacturing is another term for just-in-time (JIT) production system, in which a company develops a group of vendors who can supply the inventory with minimum lead time just before the item is required in the manufacturing process. The goal is to maximize customer value and minimize costs.
When comparing strategic planning with operational planning, which one of the following statements is most appropriate?
A. Strategic planning is performed at all levels of management.
B. Operational planning results in budget data.
C. Strategic planning focuses on authority and responsibility.
D. Operational planning is long-range in focus.
B. Operational planning results in budget data.
Operational planning results in budget data to be used in planning day-to-day operations. This is the only true statement among the answer choices.
Strategic planning is performed only at the highest level of management and focuses on long-range goals.
Preparation of performance reports depends on the result of operational planning.
Which of the following costing methods provides the added benefit of usefulness for external reporting purposes?
Variable
Absorption
A. I only
B. II only
C. Both I and II
D. Neither I nor II
B. II only Absorption 吸收
The difference between variable and absorption costing relates to the way fixed overhead costs are handled. Under variable costing, fixed manufacturing costs are period costs, and under absorption costing, fixed manufacturing costs are inventoriable.
Since GAAP and tax law only allow the use of absorption costing, variable costing does not provide any benefits for external reporting purposes.
A CPA would recommend implementing an activity-based costing system under which of the following circumstances?
A. The client is a single-product manufacturer.
B. Most of the client’s costs currently are classified as direct costs.
C. The client produced products that heterogeneously consume resources.
D. The client produced many different products that homogeneously consume resources.
C. The client produced products that heterogeneously consume resources.
Activity-based costing (ABC) systems use a two-step process. First, a separate pool accumulates the overhead costs associated with each activity and some distinct measure is found for that activity. Overhead costs from each activity pool are allocated to product lines on the basis of the activity measure. In a second step, the overhead costs accumulated by product line are then allocated to the individual units in the product line.
The idea is that when various products consume significantly different levels of resources, costs can be more accurately assigned by identifying the level of resource use for each different product. Therefore, activity-based costing would be appropriate if the client’s products heterogeneously consume resources (each takes different levels of resources).
A single product manufacturer would not be able to benefit from closely analyzing the cost structure of different products. ABC systems are used to assign indirect costs, not direct costs clearly associated with specific products. If the different products homogeneously consume resources, they all have the same level of resource consumption, so the client would not benefit from analyzing the differences in resource consumption
Which of the following would not be appropriate to consider in the physical design of a data center?
A. Evaluation of potential risks from railroad lines and highways
B. Use of biometric access systems
C. Design of authorization tables for operating system access
D. Inclusion of an uninterruptible power supply system and surge protection
C. Design of authorization tables for operating system access
Authorization tables for operating system access address logical controls, not physical controls.
External risks should be evaluated to determine the center’s location. Biometric access systems control physical access to the data center. Power supply systems and surge protection are included in data center design.
Which of the following is one of the four perspectives of a balanced scorecard?
A. Just-in-time
B. Innovation
C. Benchmarking
D. Activity-based costing
B. Innovation
A balanced scorecard considers several areas in comparing performance results of different business units, including customer satisfaction, learning and growth (innovation), internal business process improvements, and financial measures related to operations of the unit.
JIT (just-in-time) and benchmarking are management policies related to corporate strategies, but they have no relationship to performance measurement.
Activity-based costing is a method of assigning costs to products rather than a performance measurement tool.
Which of the following is the best way to identify and manage risk?
A. Know the impact on the project
B. Have experts on the team
C. Control costs
D. Know the risks
B. Have experts on the team
The best way to identify and manage risk is to have experts in the area of the project on the team. These experts will have had experience in the aspects of the project and can help identify possible risks as well as manage the risks without busting the bank.
Product Cott has sales of $200,000, a contribution margin of 20%, and a margin of safety of $80,000. What is Cott’s fixed cost?
A. $16,000
B. $24,000
C. $80,000
D. $96,000
B. $24,000= (200-80=BE) *20%=24
The contribution margin is sales revenue minus all variable costs. Fixed costs are not considered in calculating contribution margin.
Margin of safety is the excess of actual or budgeted sales over breakeven point sales. It is the amount by which sales could decrease before losses occur.
At sales of $200,000, Cott has a margin of safety of $80,000. Sales would be $120,000 at breakeven.
With sales of $120,000, the contribution margin toward fixed costs and profit is 20% of $120,000, or $24,000. However, there is zero profit at breakeven, so the contribution margin exactly equals fixed costs, which must be $24,000.
Which of the following techniques effectively measures improvements in product quality as a result of internal failure costs?
A. Inspection of in-process goods
B. Recording the number of products returned over time
C. Tracking the number of products reworked
D. Tracking warranty expenses over time
C. Tracking the number of products reworked
A decrease in the number of products reworked over time represents an improvement in product quality due to a reduction in defective products produced.
Internal failure means defective products identified in quality inspections that must be discarded or reworked. External failure means defective products delivered to customers that must be replaced. Inspection of in-process goods may identify defective units, but the inspection does not measure the improvement in quality. Improvement is measured by using the results of the inspections.
Recording the number of products returned over time and tracking warranty expenses over time are incorrect because they represent an external failure cost, not an internal failure cost.
Which of the following is not a business process modeling tool?
A. Use case diagrams
B. Activity diagrams
C. Unified modeling language
D. Activity modeling diagram
D. Activity modeling diagram
Use case diagrams, activity diagrams, business process modeling notation, extended business modeling language, and unified modeling language are all business process modeling tools.
cost of conformance is the sum of ?
nonconformance (failure costs) include ?
cost of conformance is the sum of prevention costs plus appraisal costs
nonconformance (failure costs) include internal failure and external failure
The difference between standard hours at standard wage rates and actual hours at standard wage rates is referred to as which of the following types of variances?
A. Labor rate
B. Labor usage
C. Direct labor spending
D. Indirect labor spending
B. Labor usage
The direct labor employees are paid for the time worked at an agreed-upon rate. The direct labor cost on the flexible budget is based on the standard hours required for the activity level achieved at the standard price. The difference between what was actually paid to the workers and the flexible budget amount results in the total labor variance, which then can be separated into a rate variance and an efficiency (usage) variance.
For the spending variance, the comparison is made between the actual price and the standard price for the actual quantity purchased or used.
For the usage (efficiency) variance, the comparison is made between the actual quantity and the standard quantity at the standard price per unit.
In its first year of operations, Magna Manufacturers had the following costs when it produced 100,000 and sold 80,000 units of its only product:
Manufacturing costs–Fixed $180,000
Variable 160,000
Selling and admin. costs–Fixed 90,000
Variable 40,000
How much lower would Magna’s net income be if it used variable costing instead of full absorption costing?
A. $36,000
B. $54,000
C. $68,000
D. $94,000
A. $36,000 = (100,000 - 80,000) x $1.80 = 20,000 x $1.80
Absorption costing requires that all manufacturing costs, variable and fixed, be treated as product costs, while selling and administrative costs are treated as period costs. Absorption costing is required by GAAP for external reporting. Variable costing or direct costing is a method in which costs of inventory include only the variable manufacturing costs.
Fixed manufacturing cost per unit under absorption costing is $1.80. (Computed $180,000 ÷ 100,000 units)
The difference in income can be computed:
Income difference = Change in inventory x Fixed cost per unit = (100,000 - 80,000) x $1.80 = 20,000 x $1.80
= $36,000
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. $39,500
B. $57,000
C. $165,000
D. $175,500
B. $57,000 (20+19.5+17.5)
Prevention costs are the costs of production process changes that reduce the rate at which product defects occur. This category includes employee training ($20,000), preventative maintenance ($19,500), and supplier education ($17,500).
The cost of quality inspectors is an inspection cost that identifies a defect but does not prevent it.
Internal failure costs include reworking or scrapping defective products that are identified by the inspection process.
External failure costs include warranty and repair expenses and product recalls.
Which of the following is not a basic approach to allocating costs for costing inventory in joint-cost situations?
A. Sales value at split-off
B. Flexible budget amounts
C. Physical measures such as weights or volume
D. Constant gross margin percentage net realizable value method
B. Flexible budget amounts
Production costs up to the split-off point are sometimes assigned to the products based upon a physical measure such as weight; however, the physical measure often bears no relationship to the ultimate sales value of the products involved.
Sales methods are often used in the allocation of production costs up to the split-off point. These methods are as follows:
Relative sales value at the split-off point method: Here, joint costs are assigned to individual products in proportion to the sales value of each product relative to the sales value of all products at the split-off point.
Net realizable value method: Here, joint costs are assigned to individual products in proportion to the net realizable value of the joint products as of the split-off point (defined as the net realizable value—the final sale price less all costs to complete the product in its final form).
The flexible budget is a tool used to compare actual results to expected results given a specific level of activity achieved during a given period. This is part of the control function of management and has nothing to do with the allocation of costs to various products.
Given that demand exceeds capacity, that there is no spoilage or waste, and that there is full utilization of a constant number of assembly hours, the number of components needed for an assembly operation with an 80% learning curve should:
increase for successive periods.
decrease per unit of output.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
A. I only increase for successive periods.
The learning curve is a graphical description of the learning process that shows the impacts of learning over a number of practice opportunities on work behaviors. The learning curve usually shows increases in work performance as an employee integrates learning experiences (classes, on-the-job training, etc.) into work practices. A basic assumption of the learning curve model is that the direct labor required for the n + 1st unit will always be less than the labor required for the n unit.
Since demand exceeds supply, the company will keep increasing production with a constant number of assembly hours. Increased production requires more units of raw material (components).
Controllable revenue would be included in a performance report for:
A. a profit center.
B. a cost center.
C. both a profit center and a cost center.
D. neither a profit center nor a cost center.
A. a profit center.
The performance report of a profit center would appear as follows:
Controllable revenue XXX
Less Controllable costs XX
= Profit center income XX
Note that controllable revenue does appear in this performance report. On the other hand, only controllable costs appear in the cost center performance report.
Kanban is:
A. a technique for managing a just-in-time (JIT) inventory system developed by the Japanese.
B. a method of evaluating alternative credit policies developed by the Japanese.
C. a method of determining the economic order quantity expressed in mathematical terms.
D. a method of developing a relationship between sales and inventory used in forecasting.
A. a technique for managing a just-in-time (JIT) inventory system developed by the Japanese.
Kanban is a technique for managing a just-in-time inventory system. The kanban is a tag attached to the storage container where component parts are kept. As a component is used, a kanban is placed in a box.
Managers determine the number of kanbans needed to be in the box of the component part before a reorder of that part is necessary.
Which of the following management practices involves concentrating on areas that deserve attention and placing less attention on areas operating as expected?
A. Management by objectives
B. Responsibility accounting
C. Benchmarking
D. Management by exception
D. Management by exception
Management by exception involves concentrating on areas that deserve attention and paying less attention to areas operating as expected.
Management-by-objectives (MBO) involves having manager and subordinate jointly develop objectives and plans.
Responsibility accounting is a method whereby responsibility is identified and related to managers. Then, managerial performance is monitored and evaluated based on this identification.
Benchmarking involves identifying “best in class” performance or other measure(s), then comparing the company’s performance to that benchmark or standard.
The following direct labor information pertains to the manufacture of product Glu:
Time required to make one unit 2 direct labor hours
Number of direct workers 50
Number of productive hours per week, per worker 40
Weekly wages per worker $500
Workers’ benefits treated as direct labor costs 20% of wages
What is the standard direct labor cost per unit of product Glu?
A. $30
B. $24
C. $15
D. $12
A. $30=((500/40)2)120%
Hourly wage = $500 per week / 40 hours = $12.50/HR
Standard Direct Hours per Unit = 2 (given)
Direct Labor Cost per Unit = 2 hrs x $12.50/hr. = $25
Workers’ benefits = 20% of wages = .2 x $25 = $5
Standard Direct Labor Cost per Unit = $25 + $5 = $30
A newly introduced costing method that has recently been adopted at some firms is called ________ costing.
A. absorption
B. standard
C. throughput
D. variable
C. throughput
Throughput costing relegates all product costs except direct materials to period cost (expense) status. It is a newly proposed costing method.
Absorption, standard, and variable costing have been used for several decades.
A processing department produces joint products Ajac and Bjac, each of which incurs separable production costs after split-off. Information concerning a batch produced at a $60,000 joint cost before split-off follows:
Separable Sales
Product Costs Value
Ajac $ 8,000 $ 80,000
Bjac 22,000 40,000
Total $30,000 $120,000
What is the joint cost assigned to Ajac if costs are assigned using the relative net realizable value?
A. $16,000
B. $40,000
C. $48,000
D. $52,000
C. $48,000= (72/90)*60
Given:
Joint Cost = $60,000
NRV = Net Realizable Value
Product Ajac Bjac Total Sales value $80,000 $40,000 Less separable costs 8,000 22,000 Net realizable value $72,000 $18,000 $90,000
Joint cost assigned to Ajac = (NRV Ajac / Total NRV) x Joint Cost
= ($72,000 / $90,000) x $60,000
= .80 x $60,000
= $48,000
Which of the following forecasting methods relies mostly on judgment?
A. Time series models
B. Econometric models
C. Delphi
D. Regression
C. Delphi
The Delphi method is a collaborative process whereby managers or members of a group are independently surveyed to reach a consensus on something that will happen in the future. With no empirical evidence, this method relies mostly on judgment.
A time series model involves specific measurements taken over equally spaced intervals that assist with forecasting those measurements in the future.
Econometric models combine mathematical economics, statistics, economic statistics, and economic theory. This model involves regression analysis.
Regression uses an independent variable to predict the value of another variable.
Time series, econometric, and regression analyses all utilize mathematics and observation. Each is less subjective than the Delphi method of forecasting.
Kerner Manufacturing uses a process cost system to manufacture laptop computers. The following information summarizes operations relating to laptop computer model no. KJK20 during the quarter ending March 31:
Direct
Units Labor
Work-in-process inventory, January 1 100 $ 50,000
Started during the quarter 500
Completed during the quarter 400
Work-in-process inventory, March 31 200
Costs added during the quarter $720,000
Beginning work-in-process inventory was 50% complete for direct labor costs. Ending work-in-process inventory was 75% complete for direct labor costs. What is the total value of direct labor costs in ending work-in-process inventory using the weighted-average unit cost inventory valuation method?
A. $183,000
B. $194,000
C. $210,000
D. $216,000
C. $210,000=((50+720)/(400+2000.75))(200*0.75)
The weighted-average process cost method includes in equivalent units (EUs) all units completed plus work done on ending work-in-process (WIP).
Thus:
Weighted-average EUs = Units completed + Work done on ending WIP
For Kerner Manufacturing:
Direct labor EUs = 400 + 75% (200) = 400 + 150 = 550
Cost per direct labor EU = Total labor cost / Equivalent units = ($50,000 + $720,000) / 550 = $770,000 / 550
= $1,400
Ending direct labor WIP = 150 units in ending WIP x $1,400 per EU = $210,000
The management of a company would do which of the following to compare and contrast its financial information to published information reflecting optimal amounts?
A. Budget
B. Forecast
C. Benchmark
D. Utilize best practices
C. Benchmark
Companies strive for continuous improvement. One of the tools available to managers to help them to institute improvements within their organization is benchmarking. Benchmarking is the study of leading companies in the industry or companies that excel in various tasks. A company’s management can strive toward improved performance by comparing and contrasting their performance to the performance of a “benchmark” organization.
Brent Co. has intracompany service transfers from Division Core, a cost center, to Division Pro, a profit center. Under stable economic conditions, which of the following transfer prices is likely to be most conducive to evaluating whether both divisions have met their responsibilities?
A. Actual cost
B. Standard variable cost
C. Actual cost plus mark-up
D. Negotiated price
B. Standard variable cost
Responsibility accounting is segmented reporting useful in management and control that breaks the enterprise into organization subdivisions that are responsible for costs, profits, and investments according to the unit’s ability to control these activities. Each center is judged on the basis of an evaluation of its performance relative to the activities over which it has control.
Variable costs include direct costs that can generally be controlled by the division to which they are allocated.
“Actual cost” and “Actual cost plus mark-up” are incorrect because actual costs can be controlled by the cost center. It should not be allowed to pass the excess costs over standard costs on to the next division.
“Negotiated price” is incorrect because a negotiated price usually would include some profit margin for the producing division, but that division only exercises control over costs rather than revenues or profit.
Baby Frames, Inc., evaluates manufacturing overhead by using variance analysis. The following information applies to the month of May:
Actual Budgeted
Number of frames manufactured 19,000 20,000
Variable overhead costs $4,100 $2 per DL hr
Fixed overhead costs $22,000 $20,000; $1 per unit
Direct labor hours 2,100 hours 0.1 hour per frame
What is the variable overhead efficiency variance?
A. $200 favorable
B. $200 unfavorable
C. $400 favorable
D. $400 unfavorable
D. $400 unfavorable
The variable overhead efficiency variance indicates the dollar result of either efficient or inefficient usage of the cost driver for variable overhead.
For Baby Frames, this cost driver is direct labor hours (DLHs). The computation is:
Variable overhead = Standard variable x Difference between actual = $2 (2,100 - (19,000 x .1)) = $2 (2,100 - 1,900) = $2 (200) = $400
Since actual DLHs exceeded budgeted DLHs, this variance is unfavorable.
Budgeted DLHs are based on budgeted hours for actual product output (19,000 frames), not what Baby Frames thought it would produce (i.e., 20,000 frames). The idea is to use the budgeted rate (0.1 hour per frame) but multiply it by the actual level of production (19,000 frames).
The definition of economic cost is:
A. all the dollar costs employers pay for all inputs purchased.
B. the opportunity cost of all inputs minus the dollar cost of those inputs.
C. the difference between all implicit and explicit costs of the business firm.
D. the sum of all explicit and implicit costs of the business firm.
D. the sum of all explicit and implicit costs of the business firm.
Economic cost is the total cost of all resources used to produce a good or service. These costs include explicit, out-of-pocket costs, as well as implicit costs. Implicit costs are the opportunity costs of using one’s own resources. For example, if a small business owner uses her own capital of $100,000 to start a business, she does not pay interest expense to herself for use of this capital. However, it is an implicit cost of doing business since she could have been earning interest on the money if she had loaned it to someone else. This implicit cost is part of the total economic cost of doing business.
Economic cost includes the value of all of the resources used to produce something whether or not money actually changes hands.
o determine the best cost driver of warranty costs relating to glass breakage during shipments, Wymer Co. used simple linear regression analysis to study the relationship between warranty costs and each of the following variables: type of packaging, quantity shipped, type of carrier, and distance shipped. The analysis yielded the following statistics:
Standard
Coefficient of Error of
Independent Variable Determination Estimate
Type of packaging 0.60 1.524
Quantity shipped 0.48 1.875
Type of carrier 0.45 2.149
Distance shipped 0.20 4.867
Based on these analyses, the best driver of warranty costs for glass breakage is:
A. type of packaging.
B. quantity shipped.
C. type of carrier.
D. distance shipped.
A. type of packaging.
The coefficient of determination closest to 1.00 explains the most variability in a simple regression model.
R2 = SSR/SST, where r2 is the coefficient of determination, SSR is the sum of the squared deviations of regression (the explained part), and SST is the total sum of squared deviations of the dependent variable around its mean.
The independent variable, type of packaging, has the highest coefficient of determination (0.60) and the lowest standard error of estimate (1.524), thus it is the best driver for the dependent variable, warranty costs for glass breakage.
he following information is available on Crain Co.’s two product lines:
Chairs Tables
Sales $180,000 $ 48,000
Variable costs (96,000) (30,000)
Contribution margin $ 84,000 $ 18,000
Fixed costs:
Avoidable (36,000) (12,000)
Unavoidable (18,000) (10,800)
Operating income (loss) $ 30,000 $ (4,800)
Assuming that the table line is discontinued, and the factory space previously used to make tables is rented for $24,000 per year, operating income will increase by what amount?
A. $13,200
B. $18,000
C. $24,000
D. $28,800
B. $18,000= (48-30-12)+24
When looking at business segment issues, relevant items are those that are avoidable. In other words, revenue, variable costs, and avoidable fixed costs are relevant. The allocated common costs are not relevant since they will continue even if the table line is discontinued. If the segment margin is positive, this means that the segment is making a contribution toward the common costs of the organization. Reordering the information given in the problem, it can be seen that the table segment has a positive segment margin.
Total Chairs Tables
Sales $228,000 $180,000 $ 48,000
Variable costs (126,000) (96,000) (30,000)
Contribution margin $102,000 $ 84,000 $ 18,000
Avoidable fixed costs (48,000) (36,000) (12,000)
Segment margin $ 54,000 $ 48,000 $ 6,000
Unavoidable fixed costs (28,800)
Operating income $ 25,200
What items are relevant if the table line is discontinued? The table-line segment margin would be eliminated; however, factory space that would be freed up could then be rented for $24,000 per year (opportunity cost).
Lost contribution to overhead $(6,000)
Rental opportunity 24,000
Increase in operating income $18,000
Colter Corp. is conducting an analysis of a potential capital investment. The project is expected to increase sales by $100,000 and reduce costs by $50,000 annually. Depreciation expense is $30,000 per year. Colter’s marginal tax rate is 40%. What is the annual operating cash flow for the project?
A. $42,000
B. $72,000
C. $90,000
D. $102,000
D. $102,000 (30+(100+50-30)0.6(1-40%)
Annual operating cash flow is computed as follows:
Pretax operating income
($100,000 + $50,000 - $30,000) $120,000
Less taxes at 40% (48,000)
After-tax operating income $ 72,000
Add back noncash expenses (depreciation) 30,000
Annual operating cash flow $102,000
Based on standard direct labor hours, a fixed overhead volume variance measures:
A. deviation from standard direct labor hour capacity.
B. deviation from the normal, or denominator, level of direct labor hours.
C. fixed overhead efficiency.
D. fixed overhead utilization.
B. deviation from the normal, or denominator, level of direct labor hours.
Fixed overhead volume variance is the difference between fixed overhead applied using a predetermined rate and budgeted fixed overhead. If fixed overhead is applied on the basis of direct labor hours, a deviation from the normal, or budgeted, level of direct labor hours used in determining the predetermined rate, would result in a fixed overhead volume variance.
Which of the following is not a typical characteristic of a just-in-time (JIT) production environment?
A. Lot sizes equal to one
B. Insignificant setup times and costs
C. Push-through systems
D. Balanced and level workloads
C. Push-through systems
The just-in-time (JIT) production environment is characterized by production generated by need. This is a “demand-pull” system in which sales occur first and trigger the production of units. Typical features of a JIT system include small lot sizes, low setup times/costs, and balanced workloads.
Traditional production systems, on the other hand, produce products based on expected demand. They produce on a fixed schedule in a “push-through” mode.
Which of the following does not support business process management
A. Approaches
B. Systems
C. Techniques
D. Measures
B. Systems
Business process management is supported by the approaches, techniques, and measures of the organization (not the systems). These processes are analyzed throughout the life of the organization.
A direct labor overtime premium should be charged to a specific job when the overtime is caused by the:
A. increased overall level of activity.
B. customer’s requirement for early completion of job.
C. management’s failure to include the job in the production schedule.
D. management’s requirement that the job be completed before the annual factory vacation closure.
B. customer’s requirement for early completion of job.
When actual amounts differ from standard amounts, a variance is recorded. The variance should be assigned to the department or division that has the ability to control the activity that causes the variance. The customer’s early completion requirement for this job was the activity that caused the overtime cost, so the additional cost should be charged to this job.
“Increased overall level of activity” is incorrect because an increase in general demand is not a cost that can be controlled. “Management’s failure to include the job in the production schedule” is incorrect because the job did not cause the overtime; management’s planning error did. “Management’s requirement that the job be completed before the annual factory vacation closure” is incorrect because management’s decision caused the overtime rather than the current specific job.
Which of the following describes an off-shore operation?
A. A U.S. company incorporates in Japan.
B. A Japanese company produces right off the Japanese shore.
C. It is an internal department.
D. It is a cost-saving process.
A. A U.S. company incorporates in Japan.
Off-shore operations” describes an organization incorporating outside of the original jurisdiction of the primary operations. The organization will be considered off-shore if it:
incorporates under offshore company laws.
incorporates as a nonresident.
does not trade within the offshore jurisdiction.
meets nominal tax expenses.
What is the main purpose of outsourcing?
A. To improve management
B. Better training
C. To reduce costs
D. To increase personnel
C. To reduce costs
Outsourcing to other countries helps reduce costs. A corporation in the United States will outsource to Japan because Japan will pay employees much less wages for the same work.
A manufacturer that wants to improve its staging process compares its procedures against the check-in process for a major airline. Which of the following tools is the manufacturer using?
A. Total quality management
B. Statistical process control
C. Economic value-added
D. Benchmarking
D. Benchmarking
Benchmarking entails comparison of process performance with other process performers, usually best-in-class performers. The other company can be in the same industry or other industries.
The other answer choices do not involve comparisons with outside companies:
Total quality management is the application of quality principles to all processes to better satisfy customers.
Statistical process control is a method of process control that uses statistical methods.
Economic value-added measures excess value created by an entity’s investments.
