Exam 11: Strategic Cost Management

The structural and executional factors that determine the long-term cost structure of an organization are called:

Prior to installing a JIT system, Grindstone Company used machine hours to assign maintenance costs to its three products of 4-inch, 6-inch, and 9-inch insulation. The maintenance costs totaled $432,000 per year. The machine hours used by each product and the quantity produced of each product are as follows: After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the three cells still totaled $432,000; however, these costs are now traceable to each cell. The maintenance cost per roll of 9-inch insulation before JIT is installed would be

Exploiting supplier linkages is the exploitation of a firm's internal activities.

Which of the following manufacturing costs is assigned to products in a JIT environment using allocation?

Clinton Corp. is a manufacturer of equipment used in motorcycles production. It currently produces a product with 15 parts but through redesign has reduced the number of parts to 5. Then current activity capacity and demand for the 15 part configuration and expected activity demand for the 5 part configuration are provided below: Materials usage has a rate of $4 per part and no fixed costs. Assembly has a rate of $15 per labor hour with no fixed component. Purchasing requires clerks that can process 5000 purchase orders. Each clerk earns $35,000 per year. There is also a $2 per order processing cost. The product sells for $45 and 50,000 units will be produced. Required: 1. What is the total cost savings from the new design? 2. What is the new sales price if the cost savings are passed on to the customer?

Life-cycle costs are all costs associated with a product during the production viewpoint.

The operational activity of inspecting is classified as a

Which viewpoint of the product life-cycle is customer-value oriented?

Prior to installing a JIT system, Clarendon Company used machine hours to assign maintenance costs to its three products of 6-inch, 8-inch, and 11-inch insulation. The maintenance costs totaled $400,000 per year. The machine hours used by each product and the quantity produced of each product are as follows: After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the three cells still totaled $400,000; however, these costs are now traceable to each cell. Cell, 6-inch $100,000 Cell, 8-inch 120,000 Cell, 11-inch 180,000 The maintenance cost per roll of 8-inch insulation before JIT is installed would be

Which of the following is NOT a trait of a JIT system?

Figure 11-3 Awesome Products Company manufactures a product sold to retailers. It is considering suppliers for its process. The supplier quality involves four activity areas: Activity Area Cost Driver and Rate Order cost $120 per purchase order Defective units $200 per unit internal failure costs Delivery trips $5 per delivery mile Carrying cost $1 per order The following supplier information is given: -Refer to Figure 11-3. Which supplier is least costly?

Figure 11-2 Blue Vibrance Company sells a product used in many manufacturing processes. The sales activity involves three activity areas: Activity Area Cost Driver and Rate Order taking $100 per purchase order Sales visits $50 per visit Delivery vehicles $1 per delivery mile The following customer information is given: -Refer to Figure 11-2. Which customer is most profitable?

Figure 11-4 The Algonquin Company developed the following budgeted life-cycle income statement for two proposed products. Each product's life cycle is expected to be two years. A 10 percent return on sales is required for new products. Because the proposed products did not have a 10 percent 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 percent of the research and development costs are traceable to Product A, and 30 percent of the marketing costs are traceable to Product A. -Refer to Figure 11-4. If research and development costs and marketing costs are traced to each product, life-cycle income for Product A would be

Exploiting customer linkages is not important since customers do not affect profitability.

Life-cycle cost management involves two types of life-cycle viewpoints: the marketing viewpoint and the production viewpoint.

Figure 11-4 The Algonquin Company developed the following budgeted life-cycle income statement for two proposed products. Each product's life cycle is expected to be two years. A 10 percent return on sales is required for new products. Because the proposed products did not have a 10 percent 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 percent of the research and development costs are traceable to Product A, and 30 percent of the marketing costs are traceable to Product A. -Refer to Figure 11-4. Return on sales for Product A would be

Prior to installing a JIT system, PVCTec Company used machine hours to assign maintenance costs to its three products of 9-inch, 11-inch, and 13-inch plastic pipe. The maintenance costs totaled $540,000 per year. The machine hours used by each product and the quantity produced of each product are as follows: After installing JIT, three manufacturing cells were created, and the cell workers were trained to perform maintenance. Maintenance costs for the three cells still totaled $540,000; however, these costs are now traceable to each cell. Required: a. Compute the maintenance cost per roll for each type of PVC pipe before JIT is installed. b. Compute the maintenance cost per roll for each type of PVC pipe after JIT is installed. c. Explain why the JIT maintenance cost per roll is more accurate than the cost per roll using the traditional approach.

The difference between what a customer receives and what the customer gives up is called:

The objective of strategic cost management is to reduce costs while strengthening strategic positions.

Figure 11-1 Ambrosia Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30 parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for the 30 unit configuration and expected activity demand for the 9 part configuration are provided below: Materials usage has a rate of $6 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost. -Refer to Figure 11-1. What is the savings in materials usage cost with the new design changes?