Cost Accounting Systems

(C. Strategic Cost Management and JIT)

STRATEGIC COST MANAGEMENT AND JIT C. development and implementation of the business strategy.
D. a and c.
THEORIES:
7. Which focuses on process improvement, process innovation, or business reengineering?
1. The major functions of management are A.. functional-based responsibility accounting
A. strategic management and long-range planning. B. activity-based responsibility accounting
B. planning and decision making. C. strategic-based responsibility accounting
C. identifying threats and opportunities for the firm. D. none of the above
D. all of the above.
8. The optimal level in the optimal cost management system is when
2. The three major types of competitive strategy include A. measurement costs are greater than error costs
A. cost leadership, differentiation, and productivity. B. measurement costs are less than error costs
B. cost leadership, focus, and productivity. C. the total of measurement costs and error costs are minimized
C. differentiation, focus, and productivity. D. both b and c
D. cost leadership, differentiation, and focus.
9. A repetitive action fulfilling a business function and increasing the worth of the product and the
3. Sustainability means the balancing of price that the customer is willing to pay for the product is referred to as a:
A. short term and long term goals in economic performance. A. non-value added activity
B. short term and long term goals in social aspects. B. value-added activity
C. short term and long term goals in environmental aspects. C. business value-added activity
D. all of the above. D. activity analysis

4. Simultaneous engineering can be used to 10. The actual time that a product must be delayed while waiting to be processed is called:
A. reduce both product and process complexity. A. service time C. transfer time
B. integrate activity-based costing with value chain analysis. B. inspection time D. idle time
C. reduce the time-to-market of new products through elimination of batch-level activities.
11. The resource utilized by a given product divided by the total amount of the resource available
D. reduce manufacturing cycle efficiency by reducing process waste. is called the
A. activity driver C. cost object
5. Engaging in which of the following will result in radical changes being made to an B. consumption ratio D. sustaining activity
organization's processes?
A. Continuous improvement C. Reengineering 12. The primary objective of just-in-time processing is to
B. Benchmarking D. Mass customization A. accumulate overhead in activity cost pools
B. eliminate or reduce all manufacturing inventories
6. In the contemporary business environment, cost management focus is on C. identify relevant activity cost drivers
A. financial reporting and cost analysis. D. none of them
B. common emphasis on standardization and standard costs.

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13. The benefits of a successful Just-In-Time system include all of the following except:
A. funds tied up in inventories are released for use elsewhere.
B. inventory buffers are increased.
C. throughput time is reduced.
D. defect rates are decreased.
14. Which of the following is not a benefit of just-in-time processing?
A. Control of significant inventory balances.
B. Enhanced product quality.
C. Reduction of rework costs.
D. Production cost savings.
15. A key concept of the JIT inventory system is:
A. the raw materials, work in process, and finished goods inventories of manufacturing
companies act as buffers so that operations can proceed smoothly even if suppliers are
late with deliveries or a department is unable to operate for a brief period due to
breakdowns or other reasons.
B. the use of many suppliers so as to ensure rapid delivery of materials for production.
C. the maintenance of a stock of raw materials so that defective materials can be replaced
quickly so as to maintain a high rate of productivity.
D. inventories are costly to carry and can be kept to minimum levels or eliminated
completely with careful planning.
16. The just in time (JIT) concept applies to which of the following:
I. The acquisition of raw materials.
II. The assembly of manufactured parts in products.
III. The shipment of finished products to customers.
A. I. C. I, II, III.
B. I, III. D. II, III.
17. The flow of goods through a JIT system is based on:
A. a workstation efficiently completing its processing of a batch of units so that the units
can proceed forward to the next workstation before the next workstation is ready to
receive them.
B. processing goods in large batch sizes rather than less economical small batches.
C. maintaining a stockpile of raw materials in anticipation of materials shortages.
D. producing to meet customer demand with no buildup of inventory at any point in the
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Cost Accounting Systems
(C. Strategic Cost Management and JIT)
production process.
18. Under just-in-time processing
A. raw materials are received just in time for use in production
B. subassembly parts are completed just in time for use in assembling finished goods
C. finished goods are completed just in time to be sold
D. all of the above
19. A successful JIT system is based upon which of the following concepts?
A. The company must rely upon a large number of suppliers to ensure frequent deliveries
of small lots.
B. The company should always choose those suppliers offering the lowest prices.
C. The company should avoid long-term contracts with suppliers so as to exert pressure
on suppliers to make prompt and frequent deliveries.
D. A small number of suppliers make frequent deliveries of specific quantities thus
avoiding the buildup of large inventories of materials on hand.
20. A company adopting the JIT approach would:
A. produce large batches of products so as to recoup the costs associated with setups.
B. attempt to reduce setup time so as to economically produce in smaller batches.
C. adapt a functional plant layout so as to enhance production flexibility.
D. require workers to become highly specialized in operating a single machine.
21. Conventional and just-in-time manufacturers differ in that the conventional manufacturer is
likely to
A. be a new entrant into its industry.
B. need less storage space than its JIT competitors.
C. give less credibility to management accounting reports.
D. have a longer production cycle than its JIT competitors.
22. In JIT manufacturing, each operation produces
A. only what is necessary for the succeeding operations
B. all that it can to offset fixed costs
C. a fixed percentage in excess of orders to ensure adequate quality stock
D. all that it can in order to build inventories
23. Many companies have significantly lowered inventory levels and costs using
 Cost Accounting Systems
(C. Strategic Cost Management and JIT)

A. activity-based costing.
B. an enterprise resource planning system. 30. When JIT manufacturing is used, which of the following costs is considered a direct product
C. the just-in-time method. cost?
D. a total quality management system. A. insurance on the plant and equipment C. janitors’ salary
B. repair parts for the machinery D. salary of the plant supervisor
24. JIT manufacturing emphasizes
A. large amounts of inventory on hand so that the company does not run out of it 31. Problems encountered with using traditional product costing for JIT manufacturing usually
B. small amounts of inventory on hand resulting in lower quality goods because production stem from
is rushed A. assigning direct materials costs to units of product.
C. reducing investment in inventory and increasing the emphasis on quality B. assigning direct labor costs to units of product.
D. both b and c C. assigning overhead costs to units of product.
D. all of the above.
25. A just-in-time manufacturer is more likely than a conventional manufacturer to
A. receive more frequent deliveries of materials. 32. A characteristic of the just-in-time manufacturing environment is
B. spend less money on advertising. A. frequent deliveries of materials
C. need workers with fewer skills. B. manufacturing cells
D. all of the above. C. little or no inventory of finished product
D. all of the above
26. Just-in-time manufacturing
A. is a demand pull rather than a push through the system 33. Just-in-time relates to
B. allows the firm to focus on quality and productivity simultaneously A. people getting to their job location just in time to begin their work.
C. increases product cost accuracy by increasing a firm’s ability to track costs to products B. machinery placed in service just in time to begin production.
D. all of the above C. materials received from suppliers just in time for production needs.
D. all of the above.
27. If JIT manufacturing is used, maintenance of the production equipment would be classified
as a 34. Which of the following is a value-added activity?
A. unit-level activity C. product-level activity A. Engineering design. C. Inventory storage.
B. cell-level activity D. facility-level activity B. Machinery repair. D. Inspections.

28. Under JIT manufacturing, many overhead costs formerly classified as indirect costs are now 35. Which of the following is a nonvalue-added activity?
A. eliminated C. no longer traceable A. Engineering design. C. Inspection.
B. depreciated D. directly traceable to the product B. Machining. D. Packaging.

29. When JIT manufacturing is used, which of the following costs is considered an indirect 36. A nonvalue-added activity in a service enterprise is
product cost? A. taking appointments. C. advertising.
A. the cost to set up cell equipment C. property taxes on the plant B. traveling. D. all of them.
B. the cost of maintenance on equipment D. salary of the cell supervisor

39
 Cost Accounting Systems
(C. Strategic Cost Management and JIT)

37. Value-added activities C. a total quality control system.

A. should be reduced or eliminated. D. all of them.
B. involve resource usage that customers are willing to pay for.
C. add cost to a product without affecting the selling price. 45. Which account is used in just-in-time processing?
D. cannot be differentiated from nonvalue-added activities. A. Raw materials inventory C. Merchandise inventory
B. Work in process inventory D. Raw and In-Process inventory
38. The company's goal for defective units as a percentage of total units produced should be:
A. 1.50% C. 0.05% 46. Under just-in-time processing, all of the following are received or completed “just in time”
B. 0.00% D. 0.53% except
A. finished goods. C. supplies.
39. All of the following are examples of non-value-added activities except B. raw materials. D. subassembly parts.
A. ordering C. receiving
B. assembling D. inspections 47. A just-in-time manufacturing process should have substantially less of which of the following
than a traditional manufacturing process?
40. Sequencing if-then statements is a simple method of: A. B. C. D.
A. testing a strategy C. creating lead measures Idle Time Yes Yes Yes No
B. prioritizing objectives D. evaluating performance Transfer Time Yes No Yes Yes
Value-added Time Yes No No No
41. Setting balanced objectives, setting target values, and aligning rewards are: Cycle Time Yes Yes Yes No
A. necessary steps in creating a balanced scorecard
B. important aspects of the capital budgeting process 48. Manufacturing cycle efficiency should be increased by employing which of the following
C. the heart of process innovation techniques?
D. the ingredients for economic forecasting A. B. C. D.
Just-in-Time Inventory Yes Yes No Yes
42. Delivery performance declines by:
Flexible Manufacturing Systems Yes Yes No No
A. increasing cycle time C. increasing velocity
Batch Manufacturing Yes No No Yes
B. decreasing cycle time D. decreasing turnover

43. Just-in-time processing Question Nos. 49 and 50 are based on the following:
A. is based on a just-in-case philosophy. Small Computer Company has the following personnel:
B. results in a push approach. I. Two inspectors: inspect the final computers
C. minimizes inventory storage and waiting time. II. Four fabricators: make the computer cases
D. all of these. III. Two computer programmers: run all of the bookkeeping for the accounting records
IV. Seven assemblers: manufacture the mother boards
44. An element of just-in-time processing is V. One owner: writes the paychecks
A. dependable suppliers who are willing to deliver on short notice.
B. a multi-skilled workforce. 49. Which groups of employees are value-added workers?
A. I and II C. II and III

40
 Cost Accounting Systems
(C. Strategic Cost Management and JIT)

B. III and V D. II and IV manager feels that the market share can be increased to 33 percent with a reduction in price to
P130. The product is currently earning a profit of P24 per unit. The president of Wine Factory
50. Which groups of employees are non-value-added workers? feels that the P24 profit per unit must be maintained.
A. I, II, and III C. I, III and V
3
B. III, IV, and V D. I, II, and IV . What is the target cost per unit?
A. P130 C. P106
PROBLEMS: B. P150 D. P126
Questions 1 & 2 are based on the following information.
4
Brad Company developed the following budgeted life-cycle income statement for two proposed . What is the original cost per unit?
products. Each product's life cycle is expected to be two years. A. P130 C. P106
B. P150 D. P126
Product A Product B Total
5
Sales P230,000 P220,000 P450,000 . Hristec Company sells a product for P215 per unit. Its market share is 20 percent. The
Cost of goods sold 150,000 150,000 300,000 marketing manager feels that the market share can be increased to 30 percent with a
Gross profit P 80,000 P 70,000 P150,000 reduction in price to P195. The product is currently earning a profit of P45 per unit. The
Period expenses: president of Hristec Company feels that the P45 profit per unit must be maintained. What is
Research and development (60,000) the original cost per unit?
Marketing (50,000) A. P170 C. P215
Life-cycle income P40,000 B. P195 D. P150
A 10% return on sales is required for new products. Because the proposed products did not have
a 10% return on sales, the products were going to be dropped. Question Nos. 6 and 7 are based on the following:
Prior to installing a JIT system, Friendly 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
Relative to Product B, Product A requires more research and development costs but fewer P840,000 per year. The machine hours used by each product and the quantity produced of each
resources to market the product. Seventy percent of the research and development costs are product are as follows:
traceable to Product A, and 40 percent of the marketing costs are traceable to Product A. Machine Hours Quantity Produced
1 4-inch 6,000 15,000 rolls
. If research and development costs and marketing costs are traced to each product, life-cycle 6-inch 10,000 12,500 rolls
income for Product A would be 9-inch 8,000 11,200 rolls
A. P18,000 C. P70,000
After installing JIT, three manufacturing cells were created and the cell workers were trained to
B. P22,000 D. P80,000
perform maintenance. Maintenance costs for the three cells still totaled P840,000; however, these
2 costs are now traceable to each cell.
. Return on sales for Product A would be
Cell, 4-inch P220,000
A. 34.8% C. 7.83%
Cell, 6-inch 300,000
B. 10% D. 8.89%
Cell, 9-inch 320,000
Questions 3 & 4 are based on the following information. 6
. The maintenance cost per roll of 4-inch insulation before JIT is installed would be
Wine Factory sells a product for P150 per unit. Its market share is 25 percent. The marketing

41
 Cost Accounting Systems
(C. Strategic Cost Management and JIT)

A. P24.00 C. P14.00 B. 2.44 units per hour D. 2.75 units per hour
B. P17.50 D. P13.16
11
. Actual velocity is:
7
. The maintenance cost per roll of 9-inch insulation before JIT is installed would be A. 2.5 units per hour C. 2.32 units per hour
A. P17.50 C. P28.57 B. 2.75 units per hour D. 2.44 units per hour
B. P25.00 D. P75.00
12
. Dapitan, Inc. manufactures a product that experiences the following activities:
8
. The product cell for Crane Company has budgeted conversion costs of P420,000 for the Processing (three departments) 40 hours
year. The cell is planned to be available 2,100 hours for production. Each unit requires Moving (four moves) 18 hours
P12.50 of materials costs. The cell started and completed 700 units. The cell process time Waiting time 42 hours
for the product is 15 minutes per unit. Storage time (before delivery) 100 hours
What is the total product cost for the period? The MCE for the product is
A. P35,000 C. P40,000 A. 5% C. 20%
B. P38,750 D. P43,750 B. 25% D. 40%
9 13
. Big Computers has the following personnel: . At the beginning of 2007, Sanchez Company installed a JIT purchasing and manufacturing
Seven assemblers: manufacture the mother boards system. The following information has been gathered about one of the company's products:
One owner: writes the paychecks Theoretical annual capacity 2,200
Two inspectors: inspect the final computers Actual production 2,000
Three fabricators: make the computer cases Production hours available 1,000
One computer programmer: runs all of the bookkeeping for the accounting records On-time deliveries 900
Two shipping clerks; ship computers to the warehouse Total deliveries 940
What would be the value-added labor ratio for this company? Number of defective units 30
A. 4/8 or 37.5 percent C. 5/8 or 62.5 percent The company's on-time delivery percentage is:
B. ½ or 50 percent D. ¾ or 75 percent A. 90 percent C. 94 percent
B. 95.7 percent D. 104.4 percent
Questions 10 & 11 are based on the following information.
At the beginning of 2005, Peterson Company installed a JIT purchasing and manufacturing system.
The following information has been gathered about one of the company's products:
Theoretical annual capacity 2,200
Actual production 2,000
Production hours available 800
On-time deliveries 900
Total deliveries 950
10
. The theoretical velocity is:
A. 2.32 units per hour C. 2.5 units per hour

42
1
. Answer: A
Gross profit P80,000
Deduct:
Research and development costs (0.70 x P60,000) ( 42,000)
Marketing costs (0.40 x P50,000) ( 20,000)
Life-cycle income of Product A P18,000
2
. Answer: C
Return on sales, Product A: (P18,000 ÷ P230,000) = 7.83%
3
. Answer: C
Target price P130
Less target profit 24
Target cost P106
4
. Answer: D
Original selling price P150
Less profit 24
Original unit cost P126
5
. Answer: A
Original Cost: (P215 – P45) = P170
6
. Answer: C
Maintenance cost per MH: (P840,000 ÷ 24,000) P25
Maintenance cost per roll, 4-Inch (6,000 x P35 ÷ 15,000) P14
7
. Answer: C
Maintenance cost per unit, 9-Inch: (P320,000 ÷ 11,200) = P28.57
8
. Answer: D
Materials cost (700 x P12.50) P 8,750
Conversion costs (700 x 0.25 x P200) 35,000
Total P43,750
9
. Answer: C
Value-added labor:
Assemblers 7 personnel
Fabricators 3 personnel
Total 10 personnel
Value-added activity ratio: (10 ÷ 16) 5/8 or 62.5%
10
. Answer: D
Theoretical velocity = Theoretical capacity ÷ Available hours
(2,200 units ÷ 800 hours) = 2.75 units per hour
11
. Answer: A
Actual Velocity: Actual Production ÷ Available Hours
(2,000 ÷ 800) = 2.5 units per hour
12
. Answer: C
MCE = Value Added Time ÷ Throughput Time
 40 ÷ (40 + 18 + 42 + 100) = 0.20
13
. Answer: B
On-time Delivery Percentage = On-time Delivery ÷ Total Delivery
(900 ÷ 940) = 95.7%