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Production situations which do not benefit ABC


1) Which of the following production situations would not benefit from ABC?
a) A manufacturing process that manufacturers large volumes of homogenous circuit boards.
b) A hospital that has many specialty departments performing complex and simple procedures.
c) A printer that prints different books, trade magazines, and newspapers for customers.
d) A government loan agency that processes student, disaster, small business, economic redevelopment and other loans.

2) What is an ABC system?
a) A system of costing that determines standards for material, labor and overhead through time and motion studies.
b) A costing system that determines how work activities are used and assigns costs of activities to products that caused the activities and their related costs.
c) It is a system of preparing financial statements for external users.
d) It is a management system that effectively utilizes capacity and allocates it to products with greatest profits.
3) What are "activities" as used in ABC systems?
a) An activity is an intermediate cost object in ABC systems.
b) An activity consumes resources such as labor, supplies, space, utilities, equipment, and so on, normally classified as indirect costs.
c) Work tasks are grouped together into activities.
d) All of the above.

4) What happens if ABC costing is used when costs vary with volume?
a) ABC will not result in significantly different product cost or profitability figures than a traditional allocation system. It will, however, require more analysis and be more costly to sustain.
b) ABC will not result in significantly different product cost or profitability figures than a traditional allocation system. It will, however, require less analysis and be less costly to sustain.
c) ABC will result in significantly different product costs than a traditional overhead allocation system and will be more accurate.
d) ABC will result in significantly different product costs than a traditional overhead allocation system and will be less accurate.
5) How does ABC lead to employee empowerment?
a) Through using accounting numbers to control operations. This leads to employees manipulating processes to achieve appropriate financial results.
b) ABC gets employees involved, because their knowledge is required to understand activities, select cost drivers, and make operations more efficient.
c) By encouraging them to classify their work as "value-added" so it will not be eliminated.
d) By establishing standards that must be met.

Tyco produces two kinds of children's learning systems: a standard system that works with a televisions and a VCR and a deluxe system that works with a desk top computer.

Tyco's overhead costs have been assigned to various production activities:

Repairs & Maintenance Setups & Scheduling Inventory support Activities Total Overhead Costs
$80,000 $100,000 $290,000 $470,000

Routine maintenance of equipment occurs after each 10,000 hours of continuous machine work. A maintenance worker lubricates and cleans the equipment. Setups & scheduling are done every time a new batch is placed in production. Inventory support activities are performed for the number of unique parts in each product.

The two products use resources as follows:

Cost Drivers
Product Quantity
(units) Prime costs
(DL + DM) Machine Hours Number of Batches Number of Parts
Standard 200,000 $800,000 30,000 100 200
Deluxe 50,000 $250,000 10,000 80 400
6) In a system that allocates overhead based on a machine hours, what is the plantwide overhead rate?
a) $26.25
b) $1.88
c) $6.75
d) $11.75
7) In a system that allocates overhead based on machine hours, what is the product cost of a standard product?
a) $26.25
b) $5.76
c) $10.01
d) $38.00

8) What is the cost driver for inventory support activities?
a) The total number of parts used in production.
b) Prime cost, because this includes the materials costs in each product.
c) The number of inventory support hours.
d) The number of unique parts in each product.

9) What is the overhead rate for setup and scheduling in an ABC system?
a) $2.50
b) $555.56
c) $.40
d) $166.67

10) What is the product cost of the standard product under an ABC system?
a) $5.06
b) $5.76
c) $10.01
d) $6.10

11) Assume that your cost analysis showed that using a traditional system the cost of a standard product was $7.50 while using an ABC system its cost was $5.00. Which statement is true?
a) You are probably selling too much of the standard product, because you are overpricing it in the market.
b) Both costs are estimates and neither is more reliable than the other.
c) You are probably selling too little of the deluxe product, and could sell more if you would price it to reflect its cost.
d) Under the traditional system, you were probably selling the deluxe product at less profit margin than you believed.

12. Activities use resources such as labor, capital equipment, materials, supplies, and utilities. Those resources have a cost. By knowing what these activities cost, we can:
a. redesign them so they cost less, or eliminate them completely if they are not essential to an organization's strategy..
b. reduce the time it takes to complete the activity by eliminating costly tasks.
c. improve quality by eliminating the most costly steps in the activity.
d. understand what causes or drives the activity to begin.

13. In a manufacturing company where the Procurement Department largely buys items for production, the driver which would cause procurement activity to begin would most likely be:
a. preparation of requisition forms by the procurement manager.
b. development of the budget of materials by the procurement manager.
c. issuance of a weekly production budget by the plant manager.
d. selection of a vendor from an approved vendor's list by an agent.

14. The customer(s) of the procurement activity is (are):
a. Accounts payable clerks
b. the vendors
c. the warehouse
d. the product purchaser is the ultimate customer, the intermediate customer is the production or plant manager.

15. A resource driver:
a. causes resources to be purchased by an organization.
b. is the factor that best assigns the cost of resource use to an activity.
c. Is used to charge for the use or consumption of activities.
d. is used to measure the output of the activity.

16. Which of the following are value-added activities in a procurement process?
a. issuance of a purchase order to a vendor.
b. inspection of goods upon arrival.
c. storing items awaiting requisition by production.
d. preparation of a production schedule

17. Time required by an activity or process is important for performance evaluation. Select the measure that you believe best represents the time involved in the procurement process.
a. The time between preparing the production schedule and the item being available to place into production.
b. The time elapsed between the purchase requisition and the purchase order being placed.
c. The time required, on average, to select a vendor and prepare a purchase order.
d. The time required between preparing the production schedule and purchase requisitions being prepared.

18. Quality of a procurement activity includes:
a. ordering the correct materials
b. ordering the correct quantity
c. receiving the correct quantities
d. receiving undamaged merchandise that meet engineering specifications.
e. All of the above.

19. Kofax's maintenance department performs routine equipment maintenance as well as changing dyes on equipment for set-up activities. This department has a manager that supervises both routine maintenance and set-up. The best resource driver for the manager's use of a computer, furniture and fixtures, space, and travel to assign costs to the two activities is:
a. An estimate of the percent of the manager's time spent on each activity
b. Number of employees supervised in each activity
c. Number of set-ups performed.
d. Number of maintenance jobs performed.

20. Through activity analysis, teams establish performance measures. One measure might be cycle time. For approval of new vendors, the best measure of cycle time is:
a. The time taken by approval agents for each step in approval activities, summed across all steps.
b. The time each step takes for both the approval manager and the agents, summed across all steps.
c. The time from the initial request of approval by a vendor to the placement of the vendor on the approved vendor list, or notification of rejection of the vendor.
d. The time taken to visit the vendor's operations plus the time to check references.

21. Payables activities within the payables department are driven to begin by:
A. Receipt of requisition forms by authorized parties.
B. Development of the budgets for expenses.
C. Receipt of receiving report from warehouse.
D. Receipt of a vendor's invoice.

22. Which of the following are value-added activities in the payables process?
a) Resolving problems with purchases.
b) inspection of goods upon arrival.
c) storing items awaiting problem resolution prior to incurring re-shipment cost.
d) Payment of vendors.

23. A forms department for the Internal Revenue Service is open 40 hours per week, 35 weeks a year to handle form requests by taxpayers. It has 20 employees who are all cross-trained. The department must maintain an inventory of forms. That activity that involves forecasting demand for forms, reviewing form quantities each day, printing out additional forms as inventory diminishes, and keeping the storage area neat and orderly so forms can be accessed by busy clerks. Seven employees maintain inventory. The department fulfills two kinds of orders: over the counter and mail. Over the counter requires 5 employees, 40 hours per week. During the year, clerks distribute 250,000 forms in 30,000 counter requests. This activity requires answering questions about needed forms, providing advice and information about booklets available to help taxpayers, filling orders, and maintaining records on requests. The remaining 8 employees fill mail orders. During the year, employees distribute 5,000,000 forms in 150,000 mail requests. Mail orders require selecting proper forms, packaging, and maintaining records of requests.

The following cost data is available for the department:

Item Information Amount
Salaries and benefits Average salary and benefits is $37,000 in the department $740,000
Rent and occupancy cost 60% of the space is used for inventory & inventory maintenance; 10% is for counter service and the remainder is for mail orders 180,000
Equipment Depreciation Used by employees to perform their tasks; necessary for all activities 42,000
Forms Costed by the IRS @.04 per form requested 210,000
Total $1,172,000

23. The best resource driver for equipment depreciation is:
e) Number of forms distributed.
f) Number of requests made.
g) Amount of space occupied by each activity.
h) Number of employees performing each activity.

24. Forecasting demand for forms, reviewing form quantities each day, printing out additional forms as inventory diminishes, and keeping the storage area neat and orderly so forms can be accessed by busy clerks comprise the:
a) process, distributing forms to taxpayers.
b) Activity, meeting counter requests.
c) Tasks in the inventory maintenance activity.
d) Activity, meeting counter and mail form requests.

25. Forms cost is:
a) A direct cost of the two activities, counter requests and mail requests.
b) An indirect cost that must be allocated to all three activities.
c) Not a cost of the activities and ignored in ABM.
d) A direct cost of the inventory activity.

26. How much salary and benefit cost is allocated to the activity, counter requests?
a) $259,000
b) $185,000
c) $296,000
d) $740,000

27. How much rent and occupancy cost is allocated to the activity, maintaining inventory?
a) $108,000
b) All of it.
c) $18,000
d) $54,000

28. If equipment cost is driven by employees, then how much equipment cost is chargeable to the activity, mail requests?
a) $2,100
b) $14,700
c) $10,500
d) $16,800

29. How much forms cost is assigned to counter requests?
a) None, it is all inventory cost.
b) $10,000
c) $200,000
d) $35,000

30. What output measure would be appropriate to measure counter requests?
a) Number of square feet used by counter requests.
b) Number of requests handled over the counter.
c) Number of employees assigned to over the counter requests.
d) Time spent responding to counter requests.

31. If the department measures cost performance for mail requests by calculating cost per request, how much is that for this cost report?
a) $566,800
b) $.11336
c) $3.78
d) $.894

32. If the department measures time performance for counter requests as the average time spent with a customer, what is that measure for this period?
a) There is not enough information to measure it.
b) 14 minutes per customer.
c) .006 hours per customer.
d) 2.8 minutes per customer.

33. Quality of customer service in the mail request activity would include:
a) Giving correct advice on proper forms to counter customers.
b) Addressing packages of forms correctly.
c) Maintaining neat, orderly storage area for forms.
d) Maintaining correct inventory records of forms.

34. The cost of the inventory maintenance activity is:
a) $381,700
b) $425,000
c) $223,500
d) $1,172,000

35. Ignore your calculations and assume that the cost of inventory maintenance is $415,000. If the cost of inventory maintenance is charged to counter and mail requests based on the number of forms requested, then how much cost will counter requests be charged for inventory maintenance?
a) $19,762.
b) $69,167
c) $159,615
d) One fourth, because the square feet used by counter and mail requests are 10% and 30%.

Assume that a production manager's schedule shows that 2,200 Chrysler Neon windshield wiper assemblies are to be produced next week and 2,000 the week after. Each wiper assembly requires the following materials:
Material Quantity Price
Arm & hinge 2 pieces/wiper $2.15/ piece
Blade 1/wiper $1.25 ea
Support bracket 1/wiper $.95 ea
The company's inventory policy for raw materials to always maintain 30% of next week's required production in inventory. That policy is followed for beginning and ending inventories.

36. Calculate the budgeted purchase quantity of arm & hinge assemblies this week.
a) 4,400 pieces
b) 4,340 pieces
c) 4,600 pieces
d) 4,280 pieces

37. What is the purchase budget for support brackets this week?
a) $2660
b) $2090
c) $1900
d) $2033

Solution Summary

Solution contains answers of multiple choice questions.(MCQ)