The capital budgeting method which calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the required rate of return is the

ACCOUNTING

Multiple Choice

The capital budgeting method which calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the required rate of return is the

a. payback method.

b. accrual accounting rate-of-return method.

c. sensitivity method.

d. net present value method.

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All of the following are methods that aid management in analyzing the expected results of capital budgeting decisions EXCEPT

ACCOUNTING

Multiple Choice

All of the following are methods that aid management in analyzing the expected results of capital budgeting decisions EXCEPT

a. accrual accounting rate-of-return method.

b. discounted cash-flow method.

c. future-value cash-flow method.

d. payback method.

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Net present value is calculated using

ACCOUNTING

Multiple Choice

Net present value is calculated using

a. the internal rate of return.

b. the required rate of return.

c. the rate of return required by the investment bankers.

d. none of the above.

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Discounted cash flow methods for capital budgeting focus on

ACCOUNTING

Multiple Choice

Discounted cash flow methods for capital budgeting focus on

a. cash inflows.

b. operating income.

c. cash outflows.

d. both (a) and (c).

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Which capital budgeting technique(s) measure all expected future cash inflows and outflows as if they occurred at a single point in time

ACCOUNTING

Multiple Choice

Which capital budgeting technique(s) measure all expected future cash inflows and outflows as if they occurred at a single point in time?

a. Net present value

b. Internal rate of return

c. Payback

d. Both (a) and (b).

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Which of the following are NOT included in the formal financial analysis of a capital budgeting program

ACCOUNTING

Multiple Choice

Which of the following are NOT included in the formal financial analysis of a capital budgeting program?

a. Quality of the output

b. Safety of employees

c. Cash flow

d. Neither (a) nor (b) are included

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Capital budgeting emphasizes two factors

ACCOUNTING

Multiple Choice

Capital budgeting emphasizes two factors

a. qualitative and nonfinancial.

b. quantitative and nonfinancial.

c. quantitative and financial

d. qualitative and financial.

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The stage of the capital-budgeting process in which projects get underway and performance is monitored is the

ACCOUNTING

Multiple Choice

The stage of the capital-budgeting process in which projects get underway and performance is monitored is the

a. implementation and control stage.

b. search stage.

c. identification stage.

d. management-control stage

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The stage of the capital budgeting process which chooses projects for implementation is the

ACCOUNTING

Multiple Choice

The stage of the capital budgeting process which chooses projects for implementation is the

a. selection stage.

b. search stage.

c. identification stage.

d. management-control stage.

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The stage of the capital budgeting process which considers the expected costs and the expected benefits of alternative capital investments is the

ACCOUNTING

Multiple Choice

The stage of the capital budgeting process which considers the expected costs and the expected benefits of alternative capital investments is the

a. identification stage.

b. search stage.

c. information-acquisition stage.

d. selection stage

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The stage of the capital budgeting process which explores alternative capital investments that will achieve organization objectives is the

ACCOUNTING

Multiple Choice

The stage of the capital budgeting process which explores alternative capital investments that will achieve organization objectives is the

a. identification stage.

b. search stage.

c. information-acquisition stage.

d. selection stage.

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The stage of the capital budgeting process which distinguishes which types of capital expenditure projects are necessary to accomplish organization objectives is the

ACCOUNTING

Multiple Choice

The stage of the capital budgeting process which distinguishes which types of capital expenditure projects are necessary to accomplish organization objectives is the

a. identification stage.

b. search stage.

c. information-acquisition stage.

d. selection stage.

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The accounting system that corresponds to the project dimension in capital budgeting is the

ACCOUNTING

Multiple Choice

The accounting system that corresponds to the project dimension in capital budgeting is the

a. net present value method.

b. internal rate of return.

c. accrual accounting rate of return.

d. life-cycle costing.

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Which of the following involves significant financial investments in projects to develop new products, expand production capacity, or remodel current production facilities

ACCOUNTING

Multiple Choice

Which of the following involves significant financial investments in projects to develop new products, expand production capacity, or remodel current production facilities?

a. Capital budgeting

b. Working capital

c. Master budgeting

d. Project-cost budgeting

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The nominal approach to incorporating inflation into the net present value method predicts cash inflows in real monetary units and uses a real rate as the required rate of return

ACCOUNTING

True or False

The nominal approach to incorporating inflation into the net present value method predicts cash inflows in real monetary units and uses a real rate as the required rate of return

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An example of an intangible asset would be a corporation’s customer base

ACCOUNTING

True or False

An example of an intangible asset would be a corporation’s customer base

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The use of an accelerated method of depreciation for tax purposes would usually increase the present value of the investment

ACCOUNTING

True or False

The use of an accelerated method of depreciation for tax purposes would usually increase the present value of the investment

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Depreciation tax deductions result in tax savings that partially offset the cost of acquiring the capital asset

ACCOUNTING

True or False

Depreciation tax deductions result in tax savings that partially offset the cost of acquiring the capital asset

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A manager who uses discounted cash flow methods to make capital budgeting decisions does not face goal-congruence issues if the accrual accounting rate of return is used for performance evaluation

ACCOUNTING

True or False

A manager who uses discounted cash flow methods to make capital budgeting decisions does not face goal-congruence issues if the accrual accounting rate of return is used for performance evaluation

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The accrual accounting rate-of-return method is similar to the internal rate-of-return method in that both methods calculate a rate-of-return percentage

ACCOUNTING

True or False

The accrual accounting rate-of-return method is similar to the internal rate-of-return method in that both methods calculate a rate-of-return percentage

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The payback method is only useful when the expected cash flows in the later years of the project are highly uncertain

ACCOUNTING

True or False

The payback method is only useful when the expected cash flows in the later years of the project are highly uncertain

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Unlike the net present value method and the internal rate-of-return method, the payback method does not distinguish between the origins of the cash flows

ACCOUNTING

True or False

Unlike the net present value method and the internal rate-of-return method, the payback method does not distinguish between the origins of the cash flows

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Deducting depreciation from operating cash flows would result in counting the initial investment twice, in the discounted cash flow analysis

ACCOUNTING

True or False

Deducting depreciation from operating cash flows would result in counting the initial investment twice, in the discounted cash flow analysis

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Relevant cash flows are expected future cash flows that differ among the alternative uses of investment funds

ACCOUNTING

True or False

Relevant cash flows are expected future cash flows that differ among the alternative uses of investment funds

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The net present value method can be used in situations where the required rate of return varies over the life of the project

ACCOUNTING

True or False

The net present value method can be used in situations where the required rate of return varies over the life of the project

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A capital budgeting project is accepted if the required rate of return equals or exceeds the internal rate of return

ACCOUNTING

True or False

A capital budgeting project is accepted if the required rate of return equals or exceeds the internal rate of return

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Internal rate of return is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time

ACCOUNTING

True or False

Internal rate of return is a method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time

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The net present value method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the hurdle rate

ACCOUNTING

True or False

The net present value method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the hurdle rate

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Discounted cash flow methods focus on operating income

ACCOUNTING

True or False

Discounted cash flow methods focus on operating income

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Discounted cash flow methods measure all the expected future cash inflows and outflows of a project as if they occurred at equal intervals over the life of the project

ACCOUNTING

True or False

Discounted cash flow methods measure all the expected future cash inflows and outflows of a project as if they occurred at equal intervals over the life of the project

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The selection stage of the capital budgeting process consists of choosing projects for possible implementation

ACCOUNTING

True or False

The selection stage of the capital budgeting process consists of choosing projects for possible implementation

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The information-acquisition stage of capital budgeting considers the expected costs and the expected benefits of alternative capital investments

ACCOUNTING

True or False

The information-acquisition stage of capital budgeting considers the expected costs and the expected benefits of alternative capital investments

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The identification stage of capital budgeting explores alternative capital investments that will achieve the objectives of the organization

ACCOUNTING

True or False

The identification stage of capital budgeting explores alternative capital investments that will achieve the objectives of the organization

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Capital budgeting focuses on projects over their entire lives in order to consider all the cash flows or cash savings from investing in a single project

ACCOUNTING

True or False

Capital budgeting focuses on projects over their entire lives in order to consider all the cash flows or cash savings from investing in a single project

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The Glass Shop, a manufacturer of large windows, is experiencing a bottleneck in its plant

ACCOUNTING

Multiple Choice

The Glass Shop, a manufacturer of large windows, is experiencing a bottleneck in its plant. Setup time at one of its workstations has been identified as the culprit. A manager has proposed a plan to reduce setup time at a cost of $72,000. The change will result in 8,000 additional windows. The selling price per window is $18, direct labor costs are $3 per window, and the cost of direct materials is $5 per window. Assume all units produced can be sold. The change will result in an increase in the throughput contribution of

a. $104,000

b. $80,000

c. $32,000

d. $8,000

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What is the change in the daily contribution margin if the change is made

ACCOUNTING

Multiple Choice

Speedy Dress Manufacturing has two workstations, cutting and finishing. The cutting station is limited by the speed of operating the cutting machine. Finishing is limited by the speed of the workers. Finishing normally waits for work from cutting. Each department works an eight-hour day. If cutting begins work two hours earlier than finishing each day, the two departments generally finish their work at about the same time. Not only does this eliminate the bottleneck, but also it increases finished units produced each day by 160 units. All units produced can be sold even though the change increases inventory stock by 20% from 400 units. The cost of operating the cutting department two more hours each day is $1,600. The contribution margin of the finished products is $6 each. Inventory carrying costs are $0.40 per unit per day.

What is the change in the daily contribution margin if the change is made?

a. $(608)

b. $(634)

c. $(672)

d. $800

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What is the total production per day if the change is made

ACCOUNTING

Multiple Choice

Speedy Dress Manufacturing has two workstations, cutting and finishing. The cutting station is limited by the speed of operating the cutting machine. Finishing is limited by the speed of the workers. Finishing normally waits for work from cutting. Each department works an eight-hour day. If cutting begins work two hours earlier than finishing each day, the two departments generally finish their work at about the same time. Not only does this eliminate the bottleneck, but also it increases finished units produced each day by 160 units. All units produced can be sold even though the change increases inventory stock by 20% from 400 units. The cost of operating the cutting department two more hours each day is $1,600. The contribution margin of the finished products is $6 each. Inventory carrying costs are $0.40 per unit per day.

What is the total production per day if the change is made?

a. 6400 units

b. 800 units

c. 880 units

d. 1600 units

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Producing more nonbottleneck output

ACCOUNTING

Multiple Choice

Producing more nonbottleneck output

a. creates more inventory, but does not increase throughput contribution.

b. creates more inventory and increases throughput contribution.

c. creates less pressure for the bottleneck workstations.

d. allows for the maximization of overall contribution.

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Keeping the bottleneck operation busy and subordinating all nonbottleneck operations to the bottleneck operation involves

ACCOUNTING

Multiple Choice

Keeping the bottleneck operation busy and subordinating all nonbottleneck operations to the bottleneck operation involves

a. maximizing the contribution margin of the nonbottleneck operation.

b. keeping the bottleneck resource busy at least 90% of the time.

c. having the workers at the nonbottleneck operation or machine improving their productivity.

d. none of the above

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Throughput contribution equals

ACCOUNTING

Multiple Choice

Throughput contribution equals

a. revenues minus direct material and direct labor costs.

b. revenues minus direct material costs and minus operating costs.

c. revenues minus direct material costs of goods sold.

d. revenues minus operating costs.

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The theory of constraints is used for cost analysis when

ACCOUNTING

Multiple Choice

The theory of constraints is used for cost analysis when

a. a manufacturing company produces multiple products and uses multiple manufacturing facilities and /or machines.

b. using a long-term time horizon.

c. operating costs are assumed fixed.

d. all of the above are correct.

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Ballard plans to add doors to its product line and anticipates that they will average 5 doors per day

ACCOUNTING

Multiple Choice

Ballard's Glass Company has a variable demand. Historically, its demand has ranged from 10 to 20 windows per day with an average of 15. John Ballard works eight hours a day, five days a week. Each order is one window and each window takes 26 minutes.

Ballard plans to add doors to its product line and anticipates that they will average 5 doors per day. Each door takes 12 minutes to install.

What is the average waiting time, in minutes, if Ballard continues to be the only worker?

a. 38.0 minutes

b. 112.4 minutes

c. 181.0 minutes

d. 410.0 minutes

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What is the cycle time for an order

ACCOUNTING

Multiple Choice

Ballard's Glass Company has a variable demand. Historically, its demand has ranged from 10 to 20 windows per day with an average of 15. John Ballard works eight hours a day, five days a week. Each order is one window and each window takes 26 minutes.


What is the cycle time for an order?

a. 26 minutes per window

b. 56.4 minutes per window

c. 82.3 minutes per window

d. 520 minutes per day

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What is the average waiting time, in minutes

ACCOUNTING

Multiple Choice

Ballard's Glass Company has a variable demand. Historically, its demand has ranged from 10 to 20 windows per day with an average of 15. John Ballard works eight hours a day, five days a week. Each order is one window and each window takes 26 minutes.


What is the average waiting time, in minutes?

a. 1.6

b. 4.4

c. 28.2

d. 56.3

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For a fast-food restaurant, the average waiting time might be formulated as

ACCOUNTING

Multiple Choice

For a fast-food restaurant, the average waiting time might be formulated as

a. [(average number of customers) x (average serving time)2]

2 x [serving capacity - (avg. # of customers x avg. serving time)]

b. [(average number of customers) x (average serving time)2] / capacity

c. [(average customers per hour) x (average serving time)2]

60 minutes

d. [(average customers per hour) x (average serving time)2]

(60 minutes) x (number of workers)

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In the formula to calculate the average waiting time, the manufacturing time is squared

ACCOUNTING

Multiple Choice

In the formula to calculate the average waiting time, the manufacturing time is squared. The reason is

a. the shorter the manufacturing time, the less the chance that the machine will be in use when an order arrives.

b. the shorter the manufacturing time, the greater the chance that the machine will be in use when an order arrives.

c. the longer the manufacturing time, the greater the chance that the machine will be in use when an order arrives.

d. the longer the manufacturing time, the less the chance the machine will be in use when an order arrives.

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_______________ is an operation where the work to be performed approaches or exceeds the available capacity

ACCOUNTING

Multiple Choice

_______________ is an operation where the work to be performed approaches or exceeds the available capacity.

a. A bottleneck

b. A time driver

c. Customer-response time

d. Manufacturing lead time

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Any factor where change in the factor causes a change in the speed with which an activity is undertaken is referred to as

ACCOUNTING

Multiple Choice

Any factor where change in the factor causes a change in the speed with which an activity is undertaken is referred to as

a. time driver.

b. bottleneck.

c. manufacturing lead time.

d. customer-response time.

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Companies that use manufacturing lead time as the base for allocating manufacturing costs to products consider that it has the following benefit(s):

ACCOUNTING

Multiple Choice

Companies that use manufacturing lead time as the base for allocating manufacturing costs to products consider that it has the following benefit(s):

a. Managers are motivated to reduce the time taken to manufacture products.

b. Total overhead costs decrease.

c. Operating income rises.

d. All of the above are benefits.

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The amount of time from when an order is ready to start on the production line to when it becomes a finished good is referred to as

ACCOUNTING

Multiple Choice

The amount of time from when an order is ready to start on the production line to when it becomes a finished good is referred to as

a. manufacturing lead time.

b. bottleneck.

c. customer-response time.

d. time driver.

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The amount of time from when a customer places an order for a product or requests a service to when the product or service is delivered to the customer is referred to as

ACCOUNTING

Multiple Choice

The amount of time from when a customer places an order for a product or requests a service to when the product or service is delivered to the customer is referred to as

a. manufacturing lead time.

b. bottleneck.

c. customer-response time.

d. time driver.

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A disadvantage of nonfinancial measures of quality include

ACCOUNTING

Multiple Choice

A disadvantage of nonfinancial measures of quality include

a. often difficult to quantify.

b. often difficult to understand.

c. they are not useful indicators of future long-run performance.

d. none of the above are disadvantages of nonfinancial measures of quality.

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The cost of quality measure has all of the following advantages EXCEPT

ACCOUNTING

Multiple Choice

The cost of quality measure has all of the following advantages EXCEPT

a. being a useful measure of comparing different quality improvement projects.

b. serving as a common denominator for evaluating trade-offs among prevention and failure costs.

c. focusing on how costly poor quality can be.

d. being in existence in almost every production circumstance.

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Nonfinancial measures of quality are of limited use by themselves

ACCOUNTING

Multiple Choice

Nonfinancial measures of quality are of limited use by themselves. They are more informative when

a. combined with trend analysis.

b. used with the half-life depreciation method.

c. used with nonroutine financial data.

d. used alone..

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The ratio of the number of processes where employees have rights to make decisions without consulting supervisors to the total number of processes is

ACCOUNTING

Multiple Choice

The ratio of the number of processes where employees have rights to make decisions without consulting supervisors to the total number of processes is

a. employee satisfaction.

b. employee empowerment.

c. employee turnover.

d. process yield.

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The ratio of good output to total output is referred to as

ACCOUNTING

Multiple Choice

The ratio of good output to total output is referred to as

a. cause and effect.

b. process yield.

c. conformance quality.

d. quality of design

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Examples of nonfinancial measures of quality include

ACCOUNTING

Multiple Choice

Examples of nonfinancial measures of quality include

a. percentage of defective units shipped to customers as a percentage of total units shipped.

b. the number of customer complaints.

c. percent of products that experience early or excessive failure.

d. all of the above are nonfinancial measures of quality.

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An important difference between financial measures of quality and nonfinancial measures of quality is

ACCOUNTING

Multiple Choice

An important difference between financial measures of quality and nonfinancial measures of quality is

a. financial measures of quality tend to be useful indicators of future long-term performance, while nonfinancial measures have more of a
short-term focus.

b. nonfinancial measures of quality tend to be useful indicators of future long-term performance, while financial measures of quality have
more of a short-term focus

c. nonfinancial measures are generally too subjective to have any long-term value.

d. there is no substantive difference between the financial and nonfinancial measures of quality.

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Management has offered to allow the prevention changes if all changes take place as anticipated and the amounts netted are less than the cost of the equipment. What is the net impact of all the changes created by the preventive changes

ACCOUNTING

Multiple Choice

Regal Products has a budget of $900,000 in 20x3 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units.


Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.


Management has offered to allow the prevention changes if all changes take place as anticipated and the amounts netted are less than the cost of the equipment. What is the net impact of all the changes created by the preventive changes?

a. $78,000

b. $(33,750)

c. $(93,570)

d. $(119,070)

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How much does external failure costs change if all changes are as anticipated with the new prevention procedures

ACCOUNTING

Multiple Choice

Regal Products has a budget of $900,000 in 20x3 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units.


Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.


How much does external failure costs change if all changes are as anticipated with the new prevention procedures? Assume all units produced are sold and there are no ending inventories.

a. $121,500 decrease

b. $121,500 increase

c. $243,000 decrease

d. None of the above

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How much will internal failure costs change if the internal product failures are reduced by 50% with the new procedures

ACCOUNTING

Multiple Choice

Regal Products has a budget of $900,000 in 20x3 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units.


Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.


How much will internal failure costs change if the internal product failures are reduced by 50% with the new procedures?

a. $33,750 decrease

b. $67,500 decrease

c. $500,000 decrease

d. $750,000 decrease

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How much will appraisal costs change assuming the new prevention methods reduce material failures by 40% in the appraisal phase

ACCOUNTING

Multiple Choice

Regal Products has a budget of $900,000 in 20x3 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units.


Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.


How much will appraisal costs change assuming the new prevention methods reduce material failures by 40% in the appraisal phase?

a. $240,000 decrease

b. $60,000 increase

c. $30,000 decrease

d. $12,000 decrease

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What is the net change in the budget of prevention costs if the procedures are automated in 20x4

ACCOUNTING

Multiple Choice

Regal Products has a budget of $900,000 in 20x3 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units.


Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.


What is the net change in the budget of prevention costs if the procedures are automated in 20x4? Will management agree with the changes?

a. $60,000 decrease, yes

b. $78,000 increase, yes

c. $60,000 increase, no

d. $138,000 increase, no

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How much will external failure costs change assuming 800,000 units of materials are received and that product failures with customers are cut in half with the new receiving method

ACCOUNTING

Multiple Choice

Metropolitan Manufacturing expects to spend $400,000 in 20x4 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save $40,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $60,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product.


Internal failure costs average $80 per failed unit of finished goods. During 20x3, 5% of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are 1% of units sold. The company carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used.


How much will external failure costs change assuming 800,000 units of materials are received and that product failures with customers are cut in half with the new receiving method?

a. $10,000 increase

b. $200,000 decrease

c. $320,000 decrease

d. $400,000 decrease

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How much will internal failure costs change, assuming 800,000 units of materials are received and that the new receiving method reduces the amount of unacceptable product units in the manufacturing process by 10%

ACCOUNTING

Multiple Choice

Metropolitan Manufacturing expects to spend $400,000 in 20x4 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save $40,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $60,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product.


Internal failure costs average $80 per failed unit of finished goods. During 20x3, 5% of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are 1% of units sold. The company carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used.


How much will internal failure costs change, assuming 800,000 units of materials are received and that the new receiving method reduces the amount of unacceptable product units in the manufacturing process by 10%?

a. $ 20,000 increase

b. $ 25,000 decrease

c. $80,000 decrease

d. $160,000 decrease

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What is the net effect on appraisal costs for 20x4, assuming the new receiving method is implemented and that 800,000 material units are received

ACCOUNTING

Multiple Choice

Metropolitan Manufacturing expects to spend $400,000 in 20x4 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save $40,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $60,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product.


Internal failure costs average $80 per failed unit of finished goods. During 20x3, 5% of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are 1% of units sold. The company carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used.


What is the net effect on appraisal costs for 20x4, assuming the new receiving method is implemented and that 800,000 material units are received?

a. $20,000 increase

b. $20,000 decrease

c. $200,000 decrease

d. $220,000 increase

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A tool which identifies potential causes of failures or defects is

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Multiple Choice

A tool which identifies potential causes of failures or defects is

a. a control chart.

b. a Pareto diagram.

c. a cause-and-effect diagram.

d. none of the above.

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A tool which indicates how frequently each type of defect occurs is a

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Multiple Choice

A tool which indicates how frequently each type of defect occurs is a

a. control chart.

b. Pareto diagram.

c. cause-and-effect diagram.

d. fishbone diagrams.

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When using a control chart, a manager does not investigate the activity when

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Multiple Choice

When using a control chart, a manager does not investigate the activity when

a. all observations are outside the preset range.

b. some observations are outside the preset range.

c. all observations are within the range of preset standard deviations.

d. almost all observations are within the range of two standard deviations.

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Statistical quality control includes a control chart tha

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Multiple Choice

Statistical quality control includes a control chart that

a. graphs a series of random events of a process

b. plots each observation relative to specified ranges that represent the expected distribution

c. plots control observations over various periods of time

d. plots only those observations outside specified limits

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A graph of a series of successive observations of a particular step, procedure, or operation taken at regular intervals of time is a

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Multiple Choice

A graph of a series of successive observations of a particular step, procedure, or operation taken at regular intervals of time is a

a. control chart

b. Pareto diagram

c. cause-and-effect diagram

d. fishbone diagrams

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Examples of opportunity costs include

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Multiple Choice

Examples of opportunity costs include

a. lost sales.

b. forgone contribution margin.

c. lower production.

d. all of the above.

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Cost of quality reports usually do not consider

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Multiple Choice

Cost of quality reports usually do not consider

a. external failure costs.

b. opportunity costs.

c. internal failure costs.

d. appraisal costs.

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1. Mount Vernon Furniture manufactures expensive tables

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Multiple Choice

Mount Vernon Furniture manufactures expensive tables. Its varnishing department is fully automated and requires substantial inspection to keep the machines operating properly. An improperly varnished table is very expensive to correct. Inspection hours for the 10,000 tables varnished in September totaled 2,500 hours by 16 employees. Eight quarts of varnish were used, on average, for each table. The standard amount of varnish per table is nine quarts. The cost of inspection for September was equal to the budgeted amount of $76,000.


What is the inspection cost per unit?

a. $30.40

b. $7.60

c. $3,800

d. $4,000

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Mount Vernon Furniture manufactures expensive tables

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Multiple Choice

Mount Vernon Furniture manufactures expensive tables. Its varnishing department is fully automated and requires substantial inspection to keep the machines operating properly. An improperly varnished table is very expensive to correct. Inspection hours for the 10,000 tables varnished in September totaled 2,500 hours by 16 employees. Eight quarts of varnish were used, on average, for each table. The standard amount of varnish per table is nine quarts. The cost of inspection for September was equal to the budgeted amount of $76,000.


The $76,000 represents

a. an activity cost pool

b. a possible cost allocation base

c. an internal failure cost

d. a work-in-process control

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Liability claims is an example of

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Multiple Choice

Liability claims is an example of

a. prevention costs

b. appraisal costs

c. internal failure costs

d. external failure costs

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Spoilage is an example of

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Multiple Choice

Spoilage is an example of

a. prevention costs

b. appraisal costs

c. internal failure costs

d. external failure costs

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Preventive equipment maintenance is an example of

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Multiple Choice

Preventive equipment maintenance is an example of

a. prevention costs

b. appraisal costs

c. internal failure costs

d. external failure costs

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Costs incurred by a nonconforming product detected before it is shipped to customers are

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Multiple Choice

Costs incurred by a nonconforming product detected before it is shipped to customers are

a. prevention costs

b. appraisal costs

c. internal failure costs

d. external failure

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Costs incurred in detecting which of the individual units of products do not conform to specifications are

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Multiple Choice

Costs incurred in detecting which of the individual units of products do not conform to specifications are

a. prevention costs

b. appraisal costs

c. internal failure costs

d. external failure costs

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Costs incurred in precluding the production of products that do not conform to specifications are

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Multiple Choice

Costs incurred in precluding the production of products that do not conform to specifications are

a. prevention costs

b. appraisal costs

c. internal failure costs

d. external failure costs

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Which of the following fail to satisfy conformance quality

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Multiple Choice

Which of the following fail to satisfy conformance quality?

a. Machines that fail to meet the needs of customers

b. Machines that break down

c. Depositing a customer's check into the correct account

d. All of the above fail to satisfy conformance quality.

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Quality of design measures how closely the characteristics of products or services match the needs and wants of customers

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Multiple Choice

Quality of design measures how closely the characteristics of products or services match the needs and wants of customers. Conformance quality

a. measures the same things

b. is the performance of a product or service according to design and product specifications

c. is making the product according to design, engineering, and manufacturing specifications

d. focuses on fitness of uses from a customer perspective

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Quality management provides an important competitive edge because it

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Multiple Choice

Quality management provides an important competitive edge because it

a. reduces costs

b. increases customer satisfaction

c. often results in substantial savings and higher revenues in the short run

d. does all of the above

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The cost of poor quality at a nonbottleneck operation is the cost of the materials wasted

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True or False

The cost of poor quality at a nonbottleneck operation is the cost of the materials wasted

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Throughput contribution is equal to revenues minus direct material and direct labor costs

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True or False

Throughput contribution is equal to revenues minus direct material and direct labor costs

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The objective of the theory of constraints is to increase throughput contribution while decreasing investments and operating costs

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True or False

The objective of the theory of constraints is to increase throughput contribution while decreasing investments and operating costs

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The average waiting time is the average amount of time an order will wait at the company's shipping office before it is sent to the customer

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True or False

The average waiting time is the average amount of time an order will wait at the company's shipping office before it is sent to the customer

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Two important drivers of time are limited capacity and bottlenecks

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True or False

Two important drivers of time are limited capacity and bottlenecks

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Manufacturing lead time is the sum of waiting time and manufacturing time for an order

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True or False

Manufacturing lead time is the sum of waiting time and manufacturing time for an order

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