Exam 21: Strategic Cost Management

At the beginning of the year, Paris, SA., initiated an environmental cost reduction program. To help assess the impact of the environmental cost reduction improvement program, the following data was collected for the current and preceding year: Preceding Year Current Year Operating costs £4,000,000 £4,000,000 Designing products 18,000 20,000 Auditing environmental activities 40,000 64,000 Recycling scrap 200,000 180,000 Restoring land to natural state 360,000 320,000 Operating polluti on control equipment 250,000 240,000 Testing for contamination 80,000 80,000 a.Compute each category of environmental quality costs as a percentage of operating costs for each year.Prevention costsDetection costsInternal failure costsExternal failure costs b.How much has profit increased as a result of the environmental cost reduction improvements?

At the beginning of the year, Bing 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, Bing's managers collected the following data for the current and preceding year: Freceding Year Current Year Sales £10,000,000 £10,000,000 Quality training 45,000 50,000 Materials inspection 100,000 140,000 Scrap 500,000 450,000 Product warranty 900,000 800,000 Rework 750,000 600,000 Product inspection 200,000 220,000 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?

Under JIT, the number and magnitude of direct fixed costs

Figure 21-1 A company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average £4,000 per day. A competitor keeps 10 days of inventory on hand, and the competitor's carrying costs average £2,000 per day. -Refer to Figure 21-1. The nonvalue-added costs for the company are

Figure 21-6 Brad Company developed the following budgeted life-cycle income statement for two proposed products. Each product's life cycle is expected to be two years. Product A Product B Total Sales £200,000 £200,000 £400,000 Cost of goods sold -120,000 -130,000 250,000 Gross profit £80,000 £70,000 £150,000 Period expenses: Research and development (70,000) Marketing (50,000) Life-cycle income £30,000 A 10 per cent return on sales is required for new products. Because the proposed products did not have a 10 per cent return on sales, the products were going to be dropped. Relative to Product B, Product A requires more research and development costs but fewer resources to market the product. Sixty per cent of the research and development costs are traceable to Product A, and 30 per cent of the marketing costs are traceable to Product A. -Refer to Figure 21-6. If research and development costs and marketing costs are traced to each product, life-cycle income for Product B would be

Which of the following is TRUE about a manufacturing cell?

Over the LONG-TERM, prevention costs are expected to

Life-cycle cost management is particularly important for firms that have

Park, SA., sells one of its products for £40 each. Sales volume averages 2,000 units per year. Recently, its main competitor reduced the price of its product to £28. Park expects sales to drop dramatically unless it matches the competitor's price. In addition, the current profit per unit must be maintained. Information about the product (for production of 2,000) is as follows: SQ AQ Actual Cost Materials (kgs) 4,900 5,000 £20,000 Labour (hours) 1,200 1,250 10,000 Setups (hours) 0 200 6,000 Material handling (moves) 0 350 2,000 Warranties (number repaired) 0 250 10,000 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?

____ are the costs of activities executed to determine if products, processes, and other activities within the firm are in compliance with appropriate environmental standards.

Labour and overhead incurred for rework of defective products is a(n)

In the zero-defects view of quality,

At the beginning of the year, Grant 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, the following data were collected for the current and preceding years: Preceding Year Current Year Sales £3,000,000 £3,000,000 Quality training 3,000 4,500 Material inspections 7,500 12,000 Scrap 60,000 45,000 Rework 120,000 75,000 Product inspection 15,000 30,000 Product warranty 105,000 82,500 -Refer to Figure 21-8. As a result of quality improvements, profits have increased by

A withdrawal Kanban specifies

Which of the following stages comes first?

The just-in-time (JIT) approach to inventory management

The Kanban system is used to

Clark, SA., sells one of its products for £150 each. Sales volume averages 800 units per year. Recently, its main competitor reduced the price of its product to £130. Clark expects sales to drop dramatically unless it matches the competitor's price. In addition, the current profit per unit must be maintained. Information about the product (for production of 800) is as follows: SQ AQ Actual Cost Materials (kgs) 14,400 15,000 £30,000 Labour (hours) 2,000 2,400 18,000 Setups (hours) 0 1,400 8,000 Material handling (moves) 0 600 4,000 Warranties (number repaired) 0 400 20,000 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?

Which of the following is an example of a value-added activity?

JIT avoids shutdowns due to materials shortages in all of the following ways EXCEPT