Question 1

Which of the following is not a prevention activity in controlling quality?

Accepted Answer

A)  Certifying suppliers. 
B)  Field testing. 
C)  Quality training. 
D)  Process improvement. 
A)  Certifying suppliers. 
B)  Field testing. 
C)  Quality training. 
D)  Process improvement.

Question 2

Benton Company is preparing its annual profit plan. As part of its analysis of the cost of its purchasing activity, management estimates that the $48,000 for purchasing support should be assigned to the individual vendors from the information given as follows:
$$\begin{array} { | l | r | r | } 
\hline &  { \text { Vendor A } } & { \text { Vendor B } } \
\hline \text { Units purchased } & 100,000 & 200,000 \
\hline \text { Purchase orders (annual) } & 6 & 24 \
\hline \text { Number of shipments received } & 12 & 52 \
\hline
\end{array}$$
-
What is the amount of the purchasing costs that should be allocated to Vendor B, assuming Benton uses number of shipments received to compute activity-based costs?

Accepted Answer

A)  $9,000. 
B)  $16,000. 
C)  $32,000. 
D)  $39,000. 
A)  $9,000. 
B)  $16,000. 
C)  $32,000. 
D)  $39,000.

Question 3

Forensic Specialists compiled the following information for its first quarter cost of quality report:
$$\begin{array} { l r r } 
\text { Sales } & \$ 5,600,000 \
\text { Cost of goods sold } & \$ 3,360,000 \
\text { Disposing of scrap } & \$  235,200 \
\text { Quality training } & \$  84,000 \
\text { Inspecting materials on delivery } & \$  280,000 \
\text { Performance reviews } & \$ 70,000 \
\text { Resolving customer complaints } & \$  31,920 \
\text { Certifying suppliers } & \$  140,000
\end{array}$$
-
The relevant percentage to be used to express appraisal activities at Forensic Specialists is:

Accepted Answer

A)  5.7%. 
B)  33.2%. 
C)  2.75%. 
D)  1.25%. 
A)  5.7%. 
B)  33.2%. 
C)  2.75%. 
D)  1.25%.

Question 4

Describe the four types of quality costs and give an example of each.

Accepted Answer

The four types of quality costs are prev

Question 5

What is the relationship between customer profitability analysis and ABC?

Accepted Answer

ABC relies on a cost hierarchy of volume

Question 6

Unused resource capacity plus the amount of the resources used is equal to the amount of resources supplied.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following items would be classified as a batch-related cost in an activity-based cost management (ABCM) system?

Accepted Answer

A)  Indirect labor. 
B)  Production supervisor's salary. 
C)  Depreciation on factory building. 
D)  Machinery set-up costs. 
A)  Indirect labor. 
B)  Production supervisor's salary. 
C)  Depreciation on factory building. 
D)  Machinery set-up costs.

Question 8

Forensic Specialists compiled the following information for its first quarter cost of quality report:
$$\begin{array} { l l } 
\text { Sales } & \$ 5,600,000 \
\text { Cost of goods sold } & \$ 3,360,000 \
\text { Disposing of scrap } & \$  235,200 \
\text { Quality training } & \$84,000 \
\text { Inspecting materials on delivery } & \$280,000 \
\text { Performance reviews } & \$  70,000 \
\text { Resolving customer complaints } & \$  31,920 \
\text { Certifying suppliers } & \$  140,000
\end{array}$$
-
The total cost of prevention activities for Forensic Specialists is:

Accepted Answer

A)  $294,000. 
B)  $224,000. 
C)  $459,200. 
D)  $504,000. 
A)  $294,000. 
B)  $224,000. 
C)  $459,200. 
D)  $504,000.

Question 9

Jessica Long, the production manager of Maxim Corporation is frustrated by the company's policy of not scrapping defective units but reworking them. She has pointed out several times to senior management that some units are beyond rework and should be scrapped. According to her, in most cases, it would be cheaper to scrap and build a new unit from scratch rather than trying to rework a defective unit. However, Peter Crouch, the CEO, is not convinced. He wants his controller, Melinda Gates, to gather some information.
After researching the problem, Gates provides the following information:
 $\begin{array}{lc}
\text { Selling price:}&\text { \$ 132per unit}\
\text { Manufacturing costs:}\
\text { Direct materials } & 27 \
\text { Direct labor } & 32 \
\text { Variable overhead } & 24 \
\text { Variable marketing costs } & 10 \
\text { Fixed overhead } & 32\
\text { Reworking costs: } &\
\text { Materials } &  \$ 25  \
\text { Labor } & 48 \
\text { Direct machining costs } &35
\end{array}$ 
Gates also observes that reworking a defective product consumes more labor time than making a unit from scratch. As a result, for every three units reworked, Maxim forgoes the production and sale of two units.
Required:
(a) Do you agree with Jessica Long that it is cheaper to scrap than rework a defective unit? Show your computations.
(b) How can the cost information generated by Gates be useful in reducing the number of defectives?

Accepted Answer

(a) The costs of scrapping versus rework

Question 10

Quality costs can be divided into two categories: conformance and nonconformance. Explain the difference between the two and give two examples of each.

Accepted Answer

Conformance costs ensure that quality co

Question 11

Forensic Specialists compiled the following information for its first quarter cost of quality report:
$$\begin{array} { l r r } 
\text { Sales } & \$ 5,600,000 \
\text { Cost of goods sold } & \$ 3,360,000 \
\text { Disposing of scrap } & \$  235,200 \
\text { Quality training } & \$84,000 \
\text { Inspecting materials on delivery } & \$  280,000 \
\text { Performance reviews } & \$  70,000 \
\text { Resolving customer complaints } & \$  31,920 \
\text { Certifying suppliers } & \$  140,000
\end{array}$$
-
The relevant percentage to be used to express internal failure activities at Forensic Specialists is:

Accepted Answer

A)  27.9%. 
B)  4.77%. 
C)  4.2%. 
D)  15.02%. 
A)  27.9%. 
B)  4.77%. 
C)  4.2%. 
D)  15.02%.

Question 12

The basic concepts involved in activity-based costing (ABC) can be used to determine customer profitability as well as product costs.

Accepted Answer

A) True 
 B)False

Question 13

In general, the unit-level (or volume-related) costs in an activity-based costing (ABC) system are variable costs.

Accepted Answer

A) True 
 B)False

Question 14

In an activity-based cost management (ABCM) system, facility-related costs are those that are incurred to:

Accepted Answer

A)  sustain the company's marketing program. 
B)  maintain the plant's production capacity. 
C)  support the research and development process. 
D)  cause a change in the engineering plans for a product. 
A)  sustain the company's marketing program. 
B)  maintain the plant's production capacity. 
C)  support the research and development process. 
D)  cause a change in the engineering plans for a product.

Question 15

Fence Industries is preparing its annual profit plan. As part of its analysis of the profitability of its customers, management estimates that the $12,000 for sales support should be assigned to the individual customers from the information given as follows:
$$\begin{array} { | l | r | r | } 
\hline & { \text { Customer A } } &  { \text { Customer B } } \
\hline \text { Units purchased } & 100,000 & 200,000 \
\hline \text { Purchase orders (annual) } & 5 & 20 \
\hline
\end{array}$$
-
What is the amount of the sales support costs that should be allocated to Customer A assuming Fence uses units purchased to compute activity-based costs?

Accepted Answer

A)  $2,400. 
B)  $4,000. 
C)  $8,000. 
D)  $9,600. 
A)  $2,400. 
B)  $4,000. 
C)  $8,000. 
D)  $9,600.

Question 16

In activity-based costing, the cost driver rate is computed by dividing the total cost per activity by the estimated number of units produced.

Accepted Answer

A) True 
 B)False

Question 17

Internal failure costs include materials wasted in the production process and correcting products before they are sold.

Accepted Answer

A) True 
 B)False

Question 18

Internal failure activities:

Accepted Answer

A)  seek to prevent defects in the products or services being produced. 
B)  inspect inputs and attributes of individual units of products or services to detect whether they conform to specifications or customer expectations. 
C)  correct defective processes or products and services before they are delivered to customers. 
D)  are activities required after defective products or services are delivered to customers. 
A)  seek to prevent defects in the products or services being produced. 
B)  inspect inputs and attributes of individual units of products or services to detect whether they conform to specifications or customer expectations. 
C)  correct defective processes or products and services before they are delivered to customers. 
D)  are activities required after defective products or services are delivered to customers.

Question 19

In general, decreasing (or eliminating) the resources committed to nonvalue-added activities will decrease customer response time.

Accepted Answer

A) True 
 B)False

Question 20

Activity-based cost management (ABCM) uses the information provided by activity-based costing (ABC) to identify ways to improve operations.

Accepted Answer

A) True 
 B)False

Which of the following is not a prevention activity in controlling quality?

Describe the four types of quality costs and give an example of each.

What is the relationship between customer profitability analysis and ABC?

Unused resource capacity plus the amount of the resources used is equal to the amount of resources supplied.

Which of the following items would be classified as a batch-related cost in an activity-based cost management (ABCM) system?

Quality costs can be divided into two categories: conformance and nonconformance. Explain the difference between the two and give two examples of each.

The basic concepts involved in activity-based costing (ABC) can be used to determine customer profitability as well as product costs.

In general, the unit-level (or volume-related) costs in an activity-based costing (ABC) system are variable costs.

In an activity-based cost management (ABCM) system, facility-related costs are those that are incurred to:

In activity-based costing, the cost driver rate is computed by dividing the total cost per activity by the estimated number of units produced.

Internal failure costs include materials wasted in the production process and correcting products before they are sold.

Internal failure activities:

In general, decreasing (or eliminating) the resources committed to nonvalue-added activities will decrease customer response time.

Activity-based cost management (ABCM) uses the information provided by activity-based costing (ABC) to identify ways to improve operations.

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

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Exam 10: Fundamentals of Cost Management

Which of the following is not a prevention activity in controlling quality?

Describe the four types of quality costs and give an example of each.

What is the relationship between customer profitability analysis and ABC?

Unused resource capacity plus the amount of the resources used is equal to the amount of resources supplied.

Which of the following items would be classified as a batch-related cost in an activity-based cost management (ABCM) system?

Quality costs can be divided into two categories: conformance and nonconformance. Explain the difference between the two and give two examples of each.

The basic concepts involved in activity-based costing (ABC) can be used to determine customer profitability as well as product costs.

In general, the unit-level (or volume-related) costs in an activity-based costing (ABC) system are variable costs.

In an activity-based cost management (ABCM) system, facility-related costs are those that are incurred to:

In activity-based costing, the cost driver rate is computed by dividing the total cost per activity by the estimated number of units produced.

Internal failure costs include materials wasted in the production process and correcting products before they are sold.

Internal failure activities:

In general, decreasing (or eliminating) the resources committed to nonvalue-added activities will decrease customer response time.

Activity-based cost management (ABCM) uses the information provided by activity-based costing (ABC) to identify ways to improve operations.

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Fundamentals of Variance Analysis

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters