Exam 21: Strategic Cost Management

Which of the following is NOT an external failure activity?

Craig, SA., sells one of its products for £500 each. Sales volume averages 1,000 units per year. Recently, its main competitor priced their competing product at 10 per cent below Craig's price. Craig expects its sales to drop dramatically unless it matches the competitor's price. Despite the anticipated price reduction, Craig would like to maintain its current profit per unit. Information regarding the inputs required to produce 1,000 units of product is as follows: SQ AQ Actual Cost Materials (kgs) 7,800 8,000 £160,000 Labour (hours) 600 720 108,000 Setups (hours) -0- 600 34,000 Material handling (moves) -0- 300 58,000 Warranties (number repaired) -0- 200 60,000 a.Calculate the target cost for maintaining current market share and profitability. b.Calculate the nonvalue-added cost per unit. c.If nonvalue-added costs can be reduced to zero, can the target cost be achieved?

Figure 21-5 At the beginning of this year, Sammie Company installed a JIT purchasing and manufacturing system. The following information has been gathered about one of the company's products: Current Year Theoretical annual capacity 2,000 Actual production 1,800 Production hours available 1,000 Scrap (kgs) 200 Materials used (kgs) 6,400 Actual cost per unit 14 Days of inventory 3 Number of defective units 30 -Refer to Figure 21-5. Sammie's goal for defective units as a percentage of total units produced would be

Downtime attributed to quality problems is a(n)

Which of the following is not an objective of activity-based management?

A target cost is

Which of the following is NOT an internal failure activity?

Activity-based management attempts to

Which of the following process dimensions of the activity-based management model deals with "how well"?

As preventive and appraisal costs increase, internal and external failure costs are expected to

Product recalls are

Costs incurred to determine whether products and services are conforming to requirements are called

At the beginning of the year, Sherwood Company initiated a quality improvement program. The program was successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program, Sherwood's managers collected the following data for the current and preceding year: Preceding Year Current Year Sales £20,000,000 £20,000,000 Quality training 40,000 65,000 Scrap 400,000 350,000 Materials inspection 80,000 70,000 Rework 550,000 500,000 Product inspection 100,000 150,000 Froduct warranty 700,000 600,000 a.Compute prevention costs, appraisal costs, internal failure costs, and external failure costs as a percentage of sales for the preceding year and the current year. b.How much has profit increased as a result of quality improvements? c.If quality costs can be reduced even further to 2.5 per cent of sales, how much additional profit would result?

The costs of a consumer complaint department are

An activity analysis is used to determine

Figure 21-2 A company has 20 days of finished goods inventory on hand to avoid stockouts. The carrying costs of the inventory average £5,000 per day. -Refer to Figure 21-2. The nonvalue-added costs are

Reengineering is another name for

In 2006, Shelby Foods instituted a quality improvement program. At the end of 2007, the management of the company requested a report to show the amount saved by the measures taken during the year. The actual sales and actual quality costs for 2006 and 2007 are as follows: 2006 2007 Sales £1,000,000 £1,200,000 Scrap 30,000 30,000 Rework 40,000 20,000 Training program 10,000 12,000 Consumer complaints 20,000 10,000 Lost sales, incorrect labeling 16,000 - Test labour 24,000 16,000 Inspection labour 50,000 48,000 Supplier evaluation 30,000 26,000 Shelby's management believes that quality costs can be reduced to 2.5 per cent of sales within the next five years. At the end of Year 2011, Shelby's sales are projected to have grown to £1,500,000. The relative distribution of quality costs at the end of Year 2011 is as follows: Scrap 15\% Training 20\% Supplier evaluation 25\% Test labour 25\% Inspection 15\% Total quality costs a.Prepare a long-range performance report that compares the quality costs incurred at the end of 2006 with the quality-cost structure expected at the end of 2011. b.Are the targeted costs in Year 2011 all value-added costs? c.What would be the increase in profits in 2011 if the 2.5 per cent performance standard is met in that year?

Figure 21-3 A firm's warranty costs are £125,000 per year. A competitor's warranty costs are £25,000 per year. -Refer to Figure 21-3. The value-added costs are

____ are costs of activities performed because contaminants and waste have been produced but not discharged into the environment.