Chapter 19

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University of Memphis *

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7080

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Accounting

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Apr 3, 2024

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Uploaded by JusticeGorilla11999

Chapter 19 Assignments: 1. The creation of ideas and the development of prototypes are examples of: research and development and design activities 2. In which of the following stages of the value chain do value-added activities occur? R&D and design; customer service; suppliers and production; marketing and distribution 3. IFRS requires that some research and development expenditures be ___, whereas U.S. GAAP requires these activities to be ___. Capitalized; expense 4. Value-added activities: enhance a company’s value chain; add desirability to products and services in the eyes of the customer 5. The practice of assigning costs to products using multiple cost-driving activities is referred to as ___-___ ___. Activity-based costing 6. Which of the following are components of the value chain for most organizations? research and development and design activities; customer service activities; marketing and distribution activities; suppliers and production-related activities 7. Which of the following are value-added activities in the value chain? Engaging in clear and truthful marketing efforts; implementing just-in-time production processes; ensuring timely distribution and easy access to products and services 8. Which of the following are generally considered value-added activities associated with period costs? Timely and competent customer service activities; clear and truthful marketing activities 9. Which of the following statements is/are true regarding reporting differences between U.S. GAAP and IFRS? International reporting differences can impact the value chain by influencing investments in research and development; Reconciling international reporting differences may add costs to the value chain 10. Across the value chain, ___-___-___ activities do not contribute to the desirability of product or service in the eyes of the customer. Non- value-added 11. Examples of activity-based management initiatives to reduce or eliminate non-value-added activities may include: redesigning production processes; outsourcing the maintenance and repair

of production equipment; using higher-quality direct materials to eliminate scrap and waste 12. True or false: In order to engage in activity-based management, activity-based costing (ABC) information must first be created. TRUE 13. The procurement of materials and the activities needed to convert them into finished products are examples of: suppliers and production-related activities 14. Which of the following tasks is/are associated with a company that uses activity-based costing but does not engage in activity-based management? Identifying and creating multiple cost pools 15. Which of the following are generally considered non-value-added activities associated with period costs? R&D activities that satisfy engineering specifications but do not meet customer needs; accounting and financial reporting activities 16. Target costing begins by analyzing customer desires and needs as they relate to a product's: quality; functionality; price 17. Which of the following statements is/are true about accounting for research and development activities (R&D) under U.S. GAAP and IFRS? R&D activities are expensed under U.S. GAAP but are often capitalized under IFRS 18. There are four components, or phases, of the target costing process. The first two phases result in the establishment of a target ___, whereas the last two phases lead to the achievement of a target ___. Price; cost 19. Across the value chain, ___-___-___ add to product’s or service’s desirability in the eyes of the customer. Value-added-activities 20. Weston Manufacturing uses activity-based management to reduce or eliminate non-value-added activities from its value chain. The company's Human Resources Department (HR) has an annual budget of of $3 million. Of this amount, $1 million is assigned to the payroll processing cost pool. There are 3 activities associated with the payroll processing cost pool, and each is responsible for driving the following amounts of the pool's total cost: (1) 60% are driven by transaction activities; (2) 35% are driven by labor activities; and (3) 5% are driven by supply consumption activities. The HR Department has an opportunity to purchase a new computer system costing $240,000. The only cost savings that would result relate to the payroll processing

cost pool. Specifically, the new system would reduce transaction activities by 8%, labor activities by 20%, and supply consumption activities by 4%. If the expected reduction in non-value-added costs is accurate, the company will recover the cost of the $240,000 investment in. 2 years ((($1 million × 60%) × 8%) + (($1 million × 35%) × 20%) + (($1 million × 5%) × 4%) = $120,000 in cost savings per year $240,000/$120,000 per year = 2 years) 21. The consideration of all potential resources potentially consumed over a product's entire existence is often referred to as ___-___ costing. Life-cycle 22. In addition to performing the tasks associated with operating an activity-based costing system, activity-based management also involves: managing activities to reduce or eliminate those that are non-value-added; analyzing cost drivers to identify those that are non-value-added activities; collecting external benchmark information 23. True or false: The understanding of production processes is the cornerstone of target costing. TRUE 24. The process of ___ ___ is aimed at the earliest stages of new product or service development with the intent of creating processes throughout the entire value chain to ensure the profitability of the new product or service. Target costing 25. Just-in-time systems are sometimes referred to as ___ ___ manufacturing because production activity is totally driven by customer demand. Demand pull 26. Which of the following accurately depicts the target costing formula? Target Cost = Target Price – Profit Margin 27. Paying slightly higher costs for quality materials often results in: cost savings; reductions in time devoted to inspecting materials; quality improvement 28. Across the value chain, ___-___-___ activities do not contribute to the desirability of a product or service in the eyes of the customer. Non-value-added 29. The length of time required to pass completely through a manufacturing process is referred to as the ___ ___. Cycle time

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30. The consideration of all potential resources potentially consumed over a product's entire existence is often referred to as: life-cycle costing 31. One widely used measure of production quality in JIT environments is ___ per million units produced. Defects 32. Which of the following statements about target costing is/are true? An understanding of production processes is a critical element of the target costing process; Target costing requires an emphasis on a product's functionality; Target costing involves the entire value chain; The target costing process requires a cross-functional team approach 33. Companies that compete globally on quality and cost should have a well-developed ___ ___ ___ process. Total quality management 34. In contrast to just-in-time systems, manufacturing environments have historically been ___ ___ systems in which companies simply produced as many goods as possible. Supply push 35. Which of the following is an example of an internal failure cost? Performing engineering change orders 36. The design of a just-in-time system is often associated with: high equipment reliability; well-organized sequential production processes; preventive maintenance 37. In a cost of quality graph, what happens as the quality of production increases? External and internal failure costs decrease; Prevention and appraisal costs increase 38. A widely used measure of efficiency in a just-in-time environment is the ___ ___ ___. Manufacturing efficiency ratio 39. True or false: Quality is a multidimensional concept. TRUE 40. The implementation of a JIT system. establishes striving for quality as an overarching goal 41. Productivity is usually measured by comparing: input resources used for a given level of output achieved 42. Total quality management processes includes: providing good quality measures for decision making; rewarding quality performance; assigning responsibility for managing quality 43. The largest and most difficult costs of quality to measure are: external failure costs

44. Techniques discussed in this chapter that organizations commonly use to manage costs throughout the value chain include: just-in-time procedures; target costing; activity-based management; total quality management 45. What happens as the consumption of prevention and appraisal resources increases? External failure costs decline; Customer satisfaction and repeat business increase 46. Cost of quality reports typically include 4 sections of TQM costs: (1) ___ costs (such as training and maintenance); (2) ___ costs (such as materials and equipment inspections); (3) ___ failure costs (such as downtime and scrap); and (4) ___ failure costs (such as warranties and lost sales). Prevention; appraisal; internal; external 47. Which of the following are expressions of productivity? Value- added time expressed as a percentage of cycle time; Resources consumed by quality-related activities expressed as a percentage of sales dollars 48. Companies that compete globally on quality and cost should have a well-developed ___ ___ ___ process. Total quality management 49. The overall objective of using ABC, target costing, JIT, and TQM is: to eliminate non-value added activities from the value chain 50. Concerns of the ___ ultimately drive value and non-value-added activities. Customer Homeworks: 51. Which of the following is not one of the basic procedures related to activity-based costing? Compute internal failure costs 52. The primary objective of activity-based management is to: Reduce and eliminate non- value-added activities 53. Which of the following is not commonly used to measure product quality in a just-in- time system? Manufacturing efficiency ratio 54. True or False: The process of using activity-based costs to help reduce and eliminate non-value-added activities is activity-based management. TRUE

55. Summit Products, Incorporated is interested in producing and selling an improved widget. Market research indicates that customers would be willing to pay $90 for such a widget and that 50,000 units could be sold each year at this price. The current cost to produce the widget is estimated to be $65 . Summit has learned that a competitor plans to introduce a similar widget at a price of 0.23 . In response, Summit may reduce its selling price to $80. If Summit requires a 25% return on sales, what is the target cost for the new widget? $60.00 (0.25 x $80=$20 then $80-$20=$60) 56. Target costing is directed toward: the creation and design of products that will provide adequate profits 57. True or False: International Financial Reporting Standards (IFRS) requires that most research and development (R&D) activities be expensed immediately. FALSE 58. True or False: Activities related to internal failure such as rework, scrap, and engineering change orders are value-added activities since they cannot be eliminated without increasing costs elsewhere in the value chain. FALSE 59. True or False: Non-value-added activities are those that add to a product's desirability. FALSE 60. Assume you have launched a new business to manufacture The Sun Grill, a solar- powered cooking pan for camping. Your business analyst estimates that the grill’s price will stabilize at approximately $40 as similar products are introduced by competitors. Based on the analyst’s projection, your long-term goal is to earn $5.00 on each unit sold. What is your product’s target price? What is its target profit per unit? What is its target cost per unit? Target price: $40 Target profit: $5 Target cost: $35

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