Question;Chapter 11;1.;A _ ___ is a formal method of making a choice, often involving both quantitative;and qualitative analysis.;2.;In a one-time-only special order decision, the relevant costs are the _ __ costs;that ____ between the ?accept? and ?reject? alternatives.;3.;In management decisions, outcomes that are difficult to measure accurately in;numerical terms are called _ __ factors.;4.;Producing goods or providing services within the organization rather than;purchasing the same goods or services from outside vendors is called;5.;is the contribution to operating income that is forgone (given up) by not;using a limited resource in its next-best alternative use.;6.;In equipment replacement decisions, an item that is always irrelevant is the;7.;(Appendix) _);is an optimization technique used to maximize the objective function when there;are multiple constraints.;True-False;1. In general, all variable costs are relevant to decisions, and all fixed;costs are irrelevant to decisions.;2. Past (historical) costs are always irrelevant to decisions but they can be;helpful in predicting future costs.;3. A car rental company is comparing two makes of cars to decide which one to purchase;for its fleet. Miles per gallon of fuel consumption is a qualitative factor in;this decision.;4. Assuming sufficient idle production capacity is available, a one-time-only;special order should not be accepted at a selling price below the total manufacturing;cost per unit.;5. Opportunity costs do not entail cash receipts or disbursements.;6. Incremental cost and differential cost have the same meaning.;7. In deciding among three alternatives for the sale of units held in finished;goods inventory, the manager should regard past cost of the inventory as;irrelevant, whether or not the inventory is obsolete.;8. If there is an inconsistency between the decision model and the performance evaluation;model in a decision to keep or replace some ?old? equipment, the manager?s;choice tends to be influenced more by the decision model.;9. (Appendix) The LP model is not applicable to situations where there are more;than three constraints.;10. (Appendix) The area of feasible solutions in an LP graphic solution shows the;boundaries of those combinations of the two products that satisfy all;constraints.;Multiple Choice___ 1. (CPA) Light Company has 2,000 obsolete light fixtures;that were manufactured at a cost of $30,000. If the fixtures are reworked for;$10,000, they can be sold for $18,000. Alternatively, the fixtures can be sold;for $3,000 to a jobber. Assuming the fixtures are reworked and sold, the;opportunity cost is;2. (CPA) The manufacturing capacity of Jordan Company?s facilities is 30,000 units;of a product per year. A summary of operating results for the year ended December;31, 2010, is as follows;Revenues;18,000 units?$100;$1,800,000;Variable costs;990,000;Contribution margin;810,000;Fixed costs;495,000;Operating income;$ 315,000;A;foreign distributor has offered to buy 15,000 units at $90 per unit during 2011.;Assume all of Jordan?s costs will have the same behavior patterns in 2011 as in;2010. If Jordan accepts this offer and rejects 3,000 units of business from regular;customers so as not to exceed its capacity, total operating income for 2009 is;C;3. (CPA) Gata Co. plans to discontinue a division with a $48,000 contribution margin;and allocated fixed costs of $96,000, of which $42,000 cannot be eliminated.;What is the effect on Gata?s operating income of discontinuing this division?;B;4. Which one of the following items is relevant to an equipment replacement;decision?;D;5. (CPA) Maxwell Company has an opportunity to acquire a new machine to replace;one of its old machines. The new machine costs $90,000 and has an estimated useful;life of five years, with a zero terminal disposal value. Variable operating;costs are $100,000 per year. The old machine has a book value of $50,000 and a;remaining life of five years. Its disposal value now is $5,000 but would be zero;after five years. Variable operating costs are $125,000 per year. Considering;the five years in total, but ignoring time value of money and income taxes;what is the difference in operating income by replacing the old machine?;C;6. (Appendix, CMA adapted) Pleasant Valley Company makes two products, ceramic;vases (V) and ceramic bowls (B). Each vase requires two pounds of direct materials;and three hours of direct manufacturing labor. Each bowl requires two pounds of;direct materials and one hour of direct manufacturing labor. During the next;production week, 100 pounds of direct materials and 60 hours of direct;manufacturing labor are available to make vases and bowls. Each pound of direct;material costs $4 and each hour of direct manufacturing labor costs $10. All;manufacturing overhead is fixed and is estimated to be $200 per week for this;production process. Pleasant Valley sells vases for $50 each and bowls for $35;each. The objective function for total contribution margin is;C;7. Using the information in question 6, one of the constraints is;Review Exercises;1.;Edgewood Corporation has 1,440 machine-hours of plant capacity available during;a particular period for manufacturing two products with the following;characteristics;T;L;Selling;price;$42;$75;Variable;cost per unit;$20;$25;Units;that can be manufactured per machine-hour;8;3;Demand;in units;13,500;6,000;Compute the number of available;machine-hours that should be used to manufacture each product.;T;L;2.;(CMA) Richardson Motors uses ten units of Part T305 each month in the production;of large diesel engines. The cost to manufacture one unit of T305 is as;follows;Direct materials;$ 2,000;Materials handling;(20% of direct material costs);400;Direct manufacturing labor;16,000;Manufacturing overhead;(150% of direct;manufacturing labor cost);24,000;Total manufacturing cost;$42,400;Materials;handling, a separate cost category that is not included in manufacturing;overhead, represents those direct variable costs of the Receiving Department;that are allocated to direct materials and purchased components on the basis of;their cost. Richardson?s annual manufacturing overhead budget is one-third variable;and two-thirds fixed. Simpson Castings, one of Richardson?s reliable vendors;offers to supply T305 at a unit price of $30,000. Assume Richardson Motors;could rent out all its idle production capacity for $50,000 per month.;Compute;how much Richardson?s monthly cost of T305 increases/decreases if the company;purchases the;ten units from Simpson Castings.;3.;(CPA) Bradshaw Manufacturing Company is reviewing the profitability of the;company?s four products and the potential of several proposals for improving;the profitability of the product mix. An income statement and other data;follow;Total;Product W;Product X;Product Y;Product Z;Revenues;$62,600;$10,000;$18,000;$12,600;$22,000;Cost;of goods sold;44,274;4,750;7,056;13,968;18,500;Gross;margin;18,326;5,250;10,944;(1,368);3,500;Operating;costs;12,012;1,990;2,976;2,826;4,220;Operating;income;$ 6,314;$ 3,260;$ 7,968;$ (4,194);$ (720);Units;sold;1,000;1,200;1,800;2,000;Selling;price;$ 10.00;$ 15.00;$ 7.00;$ 11.00;Variable;cost of goods sold per unit;$ 2.50;$ 3.00;$ 6.50;$ 6.00;Variable;operating cost per unit;$ 1.17;$ 1.25;$ 1.00;$ 1.20;Each;of the following proposals is to be considered independently. Consider only the;product changes;stated;in each proposal, the production and sales levels of the other products remain;the same.;a.;Compute the effect on operating income if Y is dropped.;b.;Compute the total effect on operating income if Y is dropped and a resulting;loss of customers causes a decrease of 200 units in the production and sales of;X.;c.;Assume the area of the plant in which W is manufactured can easily be adapted;to the production of Z, but changes in quantities produced necessitate changes;in selling prices. Compute the total effect on operating income if production;of W is reduced to 500 units (to be sold at $12 each) and production of Z is;increased to 2,500 units (to be sold at $10.50 each).;Chapter 13;1.;An organization?s ability to offer products or services perceived by its;customers to be superior and unique relative to the products or services of its;competitors is the strategy called;2. The __ __ translates an organization?s mission;and strategy into a set of performance measures that provides the framework for;implementing its strategy.;3.;The fundamental rethinking and redesign of business processes to achieve;improvements in critical measures of performance such as cost, quality;service, speed, and customer satisfaction is called;4.;A __ __ is a diagram that describes how an organization creates value by;connecting strategic objectives in explicit cause-and-effect relationships with;each other in the financial, customer, internal business process, and learning and;growth perspectives.;5.;In subdividing the change in operating income from 2010 to 2011 into components;the __ component measures the change in operating income attributable solely to;the change in the quantity of output sold from 2010 to 2011.;6.;costs result from a cause-and-effect relationship between the cost driver;output, and the (direct or indirect) resources used to produce that output.;7.;is an integrated approach of configuring processes, products, and personnel;to match costs to the activities that need to be performed to operate;effectively and efficiently in the present and future.;8.;(Appendix) The ratio of the quantity of output produced to the costs of all;input used based on current period prices is called _ ___.;True-False;1. The balanced scorecard has separate columns for objectives, initiatives;performance measures, target performance, and actual performance.;2. The balanced scorecard gets its name because it balances short-run and;longrun financial performance measures in a single report.;3. Under the strategy of product differentiation, the financial perspective of;a well-designed balanced scorecard focuses on how much operating income results;from charging premium selling prices.;4. The cause-and-effect relationship built into the balanced scorecard is that;gains in learning and growth lead to improvements in internal business;processes, which in turn lead to higher customer satisfaction and market share;and finally result in superior financial performance.;5. In a well-designed balanced scorecard, many financial performance measures;serve as leading indicators of future nonfinancial performance.;6. Successful reengineering efforts involve changing roles and;responsibilities, eliminating unnecessary activities and tasks, using;information technology, and developing employee skills.;7. A well-designed balanced scorecard uses only objective financial and;nonfinancial performance measures.;8. The most noteworthy aspect of engineered costs is that managers are seldom confident;that the ?correct? amounts are being spent.;9. (Appendix) The lower the inputs for a given quantity of output or the higher;the output for a given quantity of inputs, the higher the level of;productivity.;10. (Appendix) Fluctuations in input prices affect partial productivity;measures.;Multiple Choice;1. Brand loyalty is associated closely with;D;2. The percentage of manufacturing processes with real-time feedback is a;performance measure under which perspective in the balanced scorecard?;?;C;3. Reengineering relates to which perspective in the balanced scorecard?;?;A;4. In analyzing the change in a company?s operating income from one year to the;next, which effect(s) is computed for the price-recovery component?;B;5. Nesbitt Company analyzed the change in its operating income from 2010 to;2011 into three components as follows;Growth;component;$684,000 favorable;Price-recovery;component;604,000 unfavorable;Productivity;component 450,000 favorable;If;operating income is $1,050,000 in 2011, operating income in 2010 is;\;6. Drummond Enterprises had an increase in its operating income from 2010 to;2011 of $200,000. Two of the three factors accounting for the increase are;Change;due to cost leadership $498,500;favorable;Change;due to product differentiation 454,500 unfavorable;The;third factor to complete this analysis is;If, in fact, a strategic;decision were made that affected the selling price, its effects are already;included in the cost leadership and product differentiation factors.;Likewise, these two factors already include the effects of a change in input;prices.;7. (Appendix, CMA) Fabro Inc. produced 1,500 units of Product RX-6 last week.;The inputs for;this;production are;450;pounds of Material A at a cost of $1.50 per pound;300;pounds of Material Z at a cost of $2.75 per pound;300;labor-hours at a cost of $15.00 per hour;The;total factor productivity for Product RX-6 is;Review Exercises;1.;The following information is from the Solution to the Featured Exercise;pp.172-173;Castleton;Company?s strategy is cost leadership.;Change;in operating income due to growth component;$;64,800;F;Change;in operating income due to price-recovery component;82,320;F;Change;in operating income due to productivity component;11,840;F;Change;in operating income from 2010 to 2011;$158,960;F;During;2011 the unit sales for Castleton?s fertilizer product, Turfgro, increased by;4% (from 10,000 tons in 2010 to 10,400 tons in 2011). A trade association;reports the industry market size for this type of fertilizer increased by 3% in;2011. The increase in Turfgro?s market share (that is, its unit sales grew by;more than the 3% growth in industry market size) and the increase in its;selling price are due to customers perceiving this product to be a superior;fertilizer.;a.;Compute the change in operating income from 2010 to 2011 that is due to three;factors: industry market size, product differentiation and cost leadership.;F;b. How successful has Castleton been in;implementing its cost leadership strategy for Turfgro? Explain.;2.;(Appendix) Vander Lind Industries makes a chemical product using direct materials;and direct manufacturing labor, which are partial substitutes for each other.;The company reported the following data for the last two years of operations;2010;2011;Output;units;8,500;10,200;Direct;materials used (in kilograms);5,700;7,000;Direct;material cost per kilogram;$3.20;$3.00;Direct;manufacturing labor-hours used;700;800;Wages;per labor-hour;$14;$15;Manufacturing;capacity in output units;12,000;11,500;Manufacturing;overhead costs;$15,000;$14,950;Manufacturing;overhead costs per unit of capacity;$1.25;$1.30;a.;Compute the partial productivity ratios for each input for each year, and;compute the change in partial;productivity;for each input from 2010 to 2011.;Inputs that would have been used in 2011 to produce 2011;output, assuming the 2010 input-output relationship continued in 2011, are as;follows;Direct materials 5,700;x(10,200/ 8,500) = 6,840 kilograms;Direct manufacturing labor 700 x(10,200 / 8,500) = 840;labor-hours;Manufacturing capacity=;Remains the same because adequate capacity is available;=;12,000 units;b. Compute the change in total factor;productivity from 2010 to 2011.;Chapter19;Review Questions and Exercises;1.;quality refers to how closely the characteristics of a product or service;meet the needs and wants of customers.;2.;quality is the performance of a product or service relative to its;design and product specifications.;3.;Costs of quality (COQ) are classified into which four categories? ___ 4. The;time it takes from the time a customer places an order for a product or service;to the time the product or service is delivered to the customer is called _ ___.;5.;is the time it takes from the time an order is received by the;Manufacturing Department to the time a finished good is produced.;6.;An operation in which the work required to be performed approaches or exceeds;the capacity available to do it is called a _ _____.;7.;Under the theory of constraints, throughput margin equals _ True-False;F;1. Costs of quality incurred to detect which of the individual units of a;product do not conform to specifications are called internal failure costs.;2. All the costs of quality entail cash outflows.;3. Costs of quality are incurred across the entire value chain.;4. Statistical quality control often uses Pareto diagrams to distinguish random;variation from nonrandom variation in an operating process.;5. A Pareto diagram helps to identify the potential causes of product failure.;6. Customer-response time is an example of a nonfinancial measure of;performance used in quality-improvement programs.;7. Average waiting time is inversely related to the amount of unused capacity.;8. Considering only quantitative factors, it may be undesirable to introduce a;new product that has a positive contribution margin, even though machine;capacity is available.;9. It is undesirable to have unused capacity at the bottleneck operation in a;manufacturing plant.;Multiple Choice;1. (CMA adapted) The costs of rework in a quality-improvement program are;categorized as;2. (CMA) The costs of using statistical quality control in a;quality-improvement program are categorized as;3. (CMA) All of the following costs are generally included in a costs of;quality report except;b.;forgone contribution margin on lost sales.;4. (CMA) The following selected line items are from the Cost of Quality Report for;Watson Company for May.;Cost;Rework;$ 725;Equipment;maintenance;1,154;Product;testing;786;Product;repair;695;Watson?s;total prevention and appraisal costs for May are;d.;$1,940.;C;5. John?s Custom Shirts has variable demand. Historically, demand has ranged from;20 to 40 shirts a day with an average of 30. John works 8 hours a day, 5 days a;week. Each order he receives is to custom print one shirt and each shirt takes 12;minutes to print. The average waiting time (rounded to nearest tenth of a;minute) is;c.;18.0 minutes.;6. Ashmore Company has two production departments, Cutting and Finishing. The Cutting;Department is constrained by the speed of the cutting machines. The Finishing;Department is constrained by the speed of the workers. The Finishing Department;normally waits on work coming from the Cutting Department. Each department;works an 8-hour day. If the Cutting Departmentwere to begin work 2 hours;earlier than the Finishing Department each day (thereby working a 10-hour day);the two departments would finish their work at about the same time. Not only;would this change eliminate the bottleneck, but also it would increase;production by 40 finished units per day. The number of units in finished goods;inventory would remain the same. It costs $400 to operate the Cutting;Department 2 more hours per day. The contribution margin is $15 per unit. If the;Cutting Department operates 10 hours per day, the total production per day is;A;7. Using the information in question 6, and assuming the Cutting Department;operates 10 hours per day, the total contribution margin per day;D;8. Which of the following isnotan action in managing;bottleneck operations under the theory of constraints?;Review Exercises;1.;Palmateer Company manufactures two products, C and P. Pertinent information is;as follows;Product;C;Product;P;Selling;price;$90;$100;Market;demand per week;100 units;50 units;Direct;material costs;$45;$40;Time;required to produce one unit;Operation;1;18;minutes;10;minutes;Operation;2;15 minutes;30 minutes;Operation;3;10;minutes;5;minutes;Operation;4;12 minutes;10 minutes;Each;operation has a capacity of 2,400 minutes per week.;What;production schedule for C and P maximizes Palmateer?s weekly throughput margin?;Show your computations.;2.;Huntington Industries makes an electronic component in two departments;Machining and Assembly. The capacity per month is 30,000 units in the Machining;Department and 20,000 units in the Assembly Department. The only variable cost;of the product is direct material of $100 per unit. All direct material cost is;incurred in the Machining Department. All other costs of operating the two;departments are fixed costs. Huntington can sell as many units of this;electronic component as it produces at a selling price of $300 per unit.;Assuming;any defective units produced in either department must be scrapped;a.;Compute the loss that occurs if a defective unit is produced in the Machining;Department.;b.;Compute the loss that occurs if a defective unit is produced in the Assembly;Department.;c. How do your answers in parts (a) and (b);relate to the theory of constraints? Explain.
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