Ch13 - Cost Accounting 13e(Horngren et al Chapter 13 1 Strategy Balanced Scorecard and Strategic Profitability Analysis 1 Strategy how an

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Unformatted text preview: Cost Accounting, 13e (Horngren et al.) Chapter 13 1 Strategy, Balanced Scorecard, and Strategic Profitability Analysis 1) Strategy how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its overall describes objectives. Answer: TRUE Diff: 1 Terms: strategy Objective: 1 AACSB: Reflective thinking 2) One of the five forces of industry analysis is understanding the bargaining power of your customers. Answer: TRUE Diff: 1 Terms: five force industry analysis Objective: 1 AACSB: Reflective thinking 3) One of the two basic strategies is achieving market leadership. Answer: FALSE Explanation: Achieving cost leadership is one of the basic strategies. Diff: 1 Terms: cost leadership Objective: 1 AACSB: Reflective thinking 4) A product differentiation strategy includes offering unique and superior products for increased prices. Answer: TRUE Diff: 1 Terms: product differentiation Objective: 1 AACSB: Reflective thinking 5) The cost leadership strategy is for products and services that are similar to competitor's products and services. Answer: TRUE Diff: 1 Terms: cost leadership Objective: 1 AACSB: Reflective thinking 6) The product differentiation strategy is probably best for a company if the engineering staff is more skilled at making process improvements than at creatively designing new products. Answer: FALSE Explanation: The cost leadership strategy is probably best for a company if the engineering staff is more skilled at making process improvements than at creatively designing new products. Diff: 2 Terms: product differentiation Objective: 1 AACSB: Reflective thinking 7) In general, profit potential increases with greater competition, stronger potential entrants, products that are similar, and tougher customers and suppliers. Answer: FALSE Explanation: In general, profit potential decreases with greater competition, stronger potential entrants, products that are similar, and tougher customers and suppliers. Diff: 1 Terms: five force industry analysis Objective: 1 AACSB: Reflective thinking 8) Reengine the fundamental rethinking and redesign of business processes to achieve improvements in critical measures of ering is performance such as cost, quality, service, speed, and customer satisfaction. Answer: TRUE Diff: 1 Terms: reengineering Objective: 2 AACSB: Reflective thinking 9) Reengine benefits are most significant when they focus on one business function rather than crossing functional lines of the business ering process. Answer: FALSE Explanation: Reengineering benefits are most significant when they cut across functional lines to focus on the entire business process. Diff: 2 Terms: reengineering Objective: 2 AACSB: Reflective thinking 10) Successfu l reengineering efforts generally involve changing the roles and responsibilities of employees. Answer: TRUE Diff: 2 Terms: reengineering Objective: 2 AACSB: Reflective thinking 11) The scorecard translates an organization's mission and strategy into a set of performance measures that provides the framework balanced for implementing its strategy. Answer: TRUE Diff: 2 Terms: Balanced Scorecard Objective: 2 AACSB: Reflective thinking 12) The balanced scorecard uses only financial performance measuresto evaluate short-run and long-run performance. Answer: FALSE Explanation: The balance scorecard uses financial and nonfinancial performance measures. Diff: 2 Terms: Balanced Scorecard Objective: 2 AACSB: Reflective thinking 13) The primary purpose of the balanced scorecard is to obtain increased operating profits for the current year. Answer: FALSE Explanation: The primary purpose of the balanced scorecard is to implement both shortrun and long-run strategies. Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 14) To achieve success, it is important to set nonfinancial objectives as well as financial objectives. Answer: TRUE Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 15) One valuable measure of the customer perspective of the balanced scorecard is market share. Answer: TRUE Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 16) The learning and growth perspective of the balanced scorecard evaluates the profitability of the strategy. Answer: FALSE Explanation: The financial perspective Diff: 1 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 17) Employee satisfaction is a measure of the internal business perspective of the balanced scorecard. Answer: FALSE Explanation: Employee satisfaction is a measure of the learning and growth perspective. Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Communication 18) The perspective of the balanced scorecard identifies targeted customers and market segments and measures the company's customer success in these segments. Answer: TRUE Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Communication 19) The customer perspective under the balanced scorecard approach would include measures on cost reduction. Answer: FALSE Explanation: The financial perspective under the balanced scorecard approach would include measures on cost reduction. Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 20) When implementing a balanced scorecard, the cause-and-effect linkages are always precise. Answer: FALSE Explanation: When implementing a balanced scorecard, the cause-and-effect linkages are seldom precise. Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 21) When evaluating managers and employees under the balanced scorecard approach, only financial measures should be considered. Answer: FALSE Explanation: When implementing a balanced scorecard, the cause-and-effect linkages are seldom precise. Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 22) An increase of operating income from one year to the next indicates a company's strategy was successful. Answer: FALSE Explanation: Operating income could have increased simply because the entire market expanded and have nothing to do with the implementation of a company's strategy. Diff: 3 Terms: Balanced Scorecard Objective: 4 AACSB: Reflective thinking 23) To the success of its strategy, a company can subdivide the change in operating income into growth, price-recovery, and evaluate productivity components. Answer: TRUE Diff: 2 Terms: growth component, price-recovery component, productivity component Objective: 4 AACSB: Reflective thinking 24) The productivity component of operating income focuses exclusively on revenues. Answer: FALSE Explanation: The productivity component of operating income focuses exclusively on costs. Diff: 2 Terms: productivity component Objective: 4 AACSB: Reflective thinking 25) The price- recovery component measures the increase in operating income from selling more units of a product. Answer: FALSE Explanation: The growth component Diff: 1 Terms: price-recovery component Objective: 4 AACSB: Reflective thinking 26) Companie have been successful at cost leadership will show large favorable price-recovery and growth components when analyzing s that profitability. Answer: FALSE Explanation: Companies that have successfully differentiated their products will show large favorable price-recovery and growth components when analyzing profitability. Diff: 3 Terms: cost leadership, price-recovery component, growth component Objective: 4 AACSB: Reflective thinking 27) The price- component of a change in operating income from one year to the next measures the increase in operating income from recovery selling more units of the product. Answer: FALSE Explanation: The growth component of a change in operating income from one year to the next measures the increase in operating income from selling more units of the product. Diff: 2 Terms: price-recovery component Objective: 4 AACSB: Reflective thinking 28) The price- recovery component of a change in operating income measures the effect of price changes on revenues and costs. Answer: TRUE Diff: 2 Terms: price-recovery component Objective: 4 AACSB: Reflective thinking 29) Unused is the amount of productive capacity available over and above the productive capacity employed to meet customer demand capacity in the current period. Answer: TRUE Diff: 2 Terms: unused capacity, discretionary costs Objective: 5 AACSB: Reflective thinking 30) Engineere d costs have no measurable cause-and-effect relationship between output and resources used. Answer: FALSE Explanation: Discretionary costs have Diff: 2 Terms: engineered costs Objective: 5 AACSB: Reflective thinking 31) Discretion ary costs arise from periodic (usually yearly) decisions regarding the maximum amount to be incurred. Answer: TRUE Diff: 1 Terms: discretionary costs Objective: 5 AACSB: Reflective thinking 32) Engineere d costs contain a higher level of uncertainty than discretionary costs. Answer: FALSE Explanation: Discretionary costs contain a higher level of uncertainty than engineered costs. Diff: 2 Terms: engineered costs, discretionary costs Objective: 5 AACSB: Reflective thinking 33) Engineere d costs may be variable or fixed in the short run. Answer: TRUE Diff: 2 Terms: engineered costs Objective: 5 AACSB: Reflective thinking 34) Research and development cost is an example of an engineered cost. Answer: FALSE Explanation: Research and development cost is an example of a discretionary cost. Diff: 2 Terms: engineered costs, discretionary costs Objective: 5 AACSB: Reflective thinking 35) It is relatively easy to identify unused capacity for discretionary costs. Answer: FALSE Explanation: It is difficult to identify Diff: 2 Terms: unused capacity, discretionary costs Objective: 6 AACSB: Reflective thinking 36) One way to eliminate unused capacity is to downsize. Answer: TRUE Diff: 1 Terms: downsizing, unused capacity Objective: 6 AACSB: Reflective thinking 37) Downsizi ng discretionary costs is easier than downsizing engineered costs. Answer: FALSE Explanation: Downsizing discretionary costs is more difficult because the unused capacity of discretionary costs is generally unknown. Diff: 2 Terms: downsizing, discretionary costs, engineered costs Objective: 6 AACSB: Reflective thinking 38) Downsizi ng often means eliminating jobs, which can have an adverse effect on employee morale. Answer: TRUE Diff: 2 Terms: downsizing Objective: 6 AACSB: Reflective thinking 39) Productivi ty measures the relationship between actual inputs used (both quantities and costs) and standard outputs produced. Answer: FALSE Explanation: Productivity measures the relationship between actual inputs used (both quantities and costs) and actual outputs produced. Diff: 1 Terms: productivity Objective: A AACSB: Reflective thinking 40) Partial productivity equals quantity of output produced divided by quantity of individual input used. Answer: TRUE Diff: 1 Terms: partial productivity Objective: A AACSB: Reflective thinking 41) Total factor productivity (TFP) is the ratio of the quantity of output produced to the costs of all inputs used, where the inputs are combined on the basis of current period prices. Answer: TRUE Diff: 1 Terms: total factor productivity (TFP) Objective: A AACSB: Reflective thinking 42) Although factor productivity (TFP) measures are comprehensive, operations personnel find financial TFP measures more difficult to total understand and less useful than physical partial productivity measures in performing their tasks. Answer: TRUE Diff: 1 Terms: total factor productivity (TFP) Objective: A AACSB: Reflective thinking 43) ________ how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its overall describes objectives. A) Strategy B) Planning C) Learning and growth perspective D) Customer perspective Answer: A Diff: 1 Terms: strategy Objective: 1 AACSB: Reflective thinking 44) In general, profit potential ________ with greater competition, stronger potential entrants, products that are similar, and moredemanding customers and suppliers. A) increases B) stays constant C) decreases D) increases exponentially Answer: C Diff: 1 Terms: five force industry analysis Objective: 1 AACSB: Reflective thinking 45) Which of the following is NOT a force that shapes an organization's profit potential? A) Competitors B) Equivalent C) products Bargaining D) power of input suppliers All of these answers are correct. Answer: D Diff: 2 Terms: five force industry analysis Objective: 1 AACSB: Reflective thinking 46) Which of the following is a force that shapes an organization's profit potential? A) Investors B) Potential C) entrants into the market Creditors D) Research and development Answer: B Diff: 2 Terms: five force industry analysis Objective: 1 AACSB: Reflective thinking 47) ________ organization's ability to offer products or services that are perceived by its customers as being superior and unique relative is an to those of its competitors. A) Strategy B) Product C) differentiation Cost leadership D) The balanced scorecard Answer: B Diff: 1 Terms: product differentiation Objective: 1 AACSB: Reflective thinking 48) ________ organization's ability to achieve low costs relative to competitors through productivity and efficiency improvements, is an elimination of waste, and tight cost control. A) Strategy B) Product C) differentiation Cost leadership D) The balanced scorecard Answer: C Diff: 1 Terms: cost leadership Objective: 1 AACSB: Reflective thinking 49) An organization that is using the product differentiation approach would: A) focus on tight cost control B) carefully C) cultivate their brands provide D) products that are similar to competitors offer products at a lower cost than competitors Answer: B Diff: 2 Terms: product differentiation Objective: 1 AACSB: Reflective thinking 50) An organization that is using the cost leadership approach would: A) incur costs for innovative R&D B) provide C) products at a higher cost than competitors focus on D) productivity through efficiency improvements bring products to market rapidly Answer: C Diff: 2 Terms: cost leadership Objective: 1 AACSB: Reflective thinking 51) ________ fundamental rethinking and redesign of business processes to achieve improvements in critical measures of performance is the such as cost, quality, service, speed, and customer satisfaction. A) Strategy B) Customer C) perspective Learning and growth perspective D) Reengineering Answer: D Diff: 1 Terms: reengineering Objective: 2 AACSB: Reflective thinking 52) Successfu l reengineering involves: A) cutting across functional lines to focus on the entire business process B) redefining the roles and responsibilities of employees C) using D) information technology All of these answers are correct. Answer: D Diff: 2 Terms: reengineering Objective: 2 AACSB: Reflective thinking 53) The balanced scorecard measures an organization's performance from all of the following perspectives EXCEPT: A) financial B) government C) customer D) learning and growth Answer: B Diff: 2 Terms: Balanced Scorecard Objective: 2 AACSB: Reflective thinking 54) ________ an organization's mission and strategy into a comprehensive set of performance measures that provide the framework for translates implementing its strategy. A) Productivity B) component Product C) differentiation Cost leadership D) The balanced scorecard Answer: D Diff: 1 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 55) The purpose of the balanced scorecard is BEST described as helping an organization: A) develop B) customer relations mobilize C) employee skills for continuous improvements in processing capabilities, quality, and response times introduce D) innovative products and services desired by target customers translate an organization's mission and strategy into a set of performance measures that help to implement the strategy Answer: D Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 56) The FIRST step to successful balanced scorecard implementation is clarifying the: A) organization's vision and strategy B) elements that C) pertain to value-added aspects of the business owner's D) expectations about return on investment objectives of all four balanced scorecard measurement perspectives Answer: A Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 57) The balanced scorecard is said to be "balanced" because it measures: A) short-term and long-term objectives B) financial and C) nonfinancial objectives internal and D) external objectives All of these answers are correct. Answer: D Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 58) Balanced scorecard objectives are in balance when: A) debits equal B) credits financial C) performance measurements are less than the majority of measurements the D) measurements are fair the measurements reflect an improvement over the previous year Answer: B Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 59) The internal business processes perspective of the balanced scorecard comprises three subprocesses that address all of the following EXCEPT: A) innovative B) processes used to create new products, services, and processes motivating C) current employees providing D) service and support to the customer after the sale delivering existing products and services to best meet the needs of customers Answer: B Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 60) Identify the BEST description of the balanced scorecard's financial perspective. To achieve our firm's vision and strategy: A) how can we B) obtain greater profits for the current year? how can we C) increase shareholder value? how will we D) obtain continuous improvements? how can we secure greater customer satisfaction? Answer: B Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 61) Identify description of the balanced scorecard's internal business processes perspective. To achieve our firm's vision and strategy: the BEST A) how do we B) lower costs? how do we C) motivate employees? how can we D) obtain greater profits? what processes will increase value to customers? Answer: D Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 62) All of the following relate to the balanced scorecard's learning and growth perspective EXCEPT: A) How do we B) achieve greater employee satisfaction? What new C) products do we create? How do we D) provide information systems with updated technology? How will we motivate and empower our employees? Answer: B Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 63) Measures of the balanced scorecard's financial perspective include: A) information B) system availability number of new patents C) revenue growth D) defect rates Answer: C Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 64) Measures of the balanced scorecard's financial perspective include all of the following EXCEPT: A) operating B) income customer C) satisfaction gross profit D) percentage cost reductions Answer: B Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 65) Measures of the balanced scorecard's customer perspective include: A) market share B) number of on- time deliveries C) number of D) process improvements revenue growth Answer: A Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 66) Measures of the balanced scorecard's customer perspective include all of the following EXCEPT: A) market share B) customer C) satisfaction number of new customers D) customer training on new products Answer: D Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 67) Measures of the balanced scorecard's internal-business-process perspective include: A) market share B) new product C) development time employee D) education return on investment Answer: B Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 68) Measures of the balanced scorecard's internal-business-process perspective include all of the following EXCEPT: A) operating B) capabilities number of new products C) employee D) turnover rates defect rates Answer: C Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 69) Measures of the balanced scorecard's learning-and-growth perspective include: A) employee B) satisfaction ratings economic value added C) time taken to D) deliver product to customers customer- retention percentage Answer: A Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 70) Measures of the balanced scorecard's learning-and-growth perspective include all of the following EXCEPT: A) employee B) education and skill level percentage of processes with advanced controls C) employeeD) satisfaction ratings time taken to replace defective products Answer: D Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 71) Which of the following is NOT true of a good balanced scorecard? A) It tells the story of a company's strategy by articulating a sequence of cause-and-effect relationships. B) It helps to C) communicate corporate strategy to all members of the organization. It identifies all measures, whether significant or small, that help to implement strategy. D) It uses nonfinancial measures to serve as leading indicators of future financial performance. Answer: C Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 72) Which of the following is NOT true of the balanced scorecard? A) Different B) strategies call for different scorecards. Successful C) implementation requires commitment and leadership from top management. Only objective measures should be used and subjective measures should be avoided. D) Cause-andeffect linkages may not be precise and should evolve over time. Answer: C Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 73) The return-on-investment ratio is an example of a balanced-scorecard measure of the: A) internal B) business process perspective customer C) perspective learning and D) growth perspective financial perspective Answer: D Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 74) The number of complaints about a product is an example of a balanced-scorecard measure of the: A) internal B) business process perspective customer C) perspective learning and D) growth perspective financial perspective Answer: B Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Communication 75) Manufact uring cycle efficiency is an example of a balanced-scorecard measure of the: A) internal B) business process perspective customer C) perspective learning and D) growth perspective financial perspective Answer: A Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 76) Surveys of employee satisfaction is an example of a balanced-scorecard measure of the: A) internal B) business process perspective customer C) perspective learning and D) growth perspective financial perspective Answer: C Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Communication Answer the following questions using the information below: Stewart Corporation plans to grow by offering a sound system, the SS3000, that is superior and unique from the competition. Stewart believes that putting additional resources into R&D and staying ahead of the competition with technological innovations is critical to implementing its strategy. 77) Stewart's strategy is: A) product B) differentiation downsizing C) reengineering D) cost leadership Answer: A Diff: 2 Terms: product differentiation Objective: 1 AACSB: Reflective thinking 78) To further company strategy, measures on the balanced scorecard would MOST likely include: A) number of B) process improvements manufacturing quality C) yield D) an increase in operating income from productivity gains Answer: B Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking Answer the following questions using the information below: Riter Corporation manufactures water toys. It plans to grow by producing high-quality water toys at a low cost that are delivered in a timely manner. There are a number of other manufacturers who produce similar water toys. Riter believes that continuously improving its manufacturing processes and having satisfied employees are critical to implementing its strategy. 79) Riter's strategy is: A) product B) differentiation downsizing C) reengineering D) cost leadership Answer: D Diff: 2 Terms: cost leadership Objective: 1 AACSB: Ethical reasoning 80) To further company strategy, measures on the balanced scorecard would MOST likely include: A) number of B) process improvements price premium earned C) longer cycle D) times an increase in operating income from increased profit margins Answer: A Diff: 3 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 81) Managers need to evaluate the success of a strategy by: A) evaluating B) budget-to-actual variances doing a costC) benefit analysis linking the D) sources of operating-income increases to the strategy evaluating the level of bonus compensation Answer: C Diff: 3 Terms: strategy Objective: 3 AACSB: Reflective thinking 82) Which t of strategy measures the changes in operating income attributed solely to an increase in the quantity of output between componen Year 1 and Year 2? A) the growth B) component the priceC) recovery component the productivity component D) the cost leadership component Answer: A Diff: 1 Terms: growth component Objective: 4 AACSB: Reflective thinking 83) Which t of strategy measures the change in operating income attributable solely to changes in a company's profit margins between componen Year 1 and Year 2? A) the growth B) component the priceC) recovery component the productivity component D) the cost leadership component Answer: B Diff: 1 Terms: price-recovery component Objective: 4 AACSB: Reflective thinking 84) Which t of strategy measures the reduction in costs attributable to a reduction in the quantity of inputs used in Year 2 relative to componen the quantity of inputs that would have been used in Year 1 to produce the Year 2 output? A) the growth B) component the priceC) recovery component the productivity component D) the cost leadership component Answer: C Diff: 1 Terms: productivity component Objective: 4 AACSB: Reflective thinking 85) When analyzing the change in operating income, the strategy component of growth: A) calculations are similar to the selling-price variance calculations B) isolates the C) change attributed solely to an increase in market share isolates the D) change attributed solely to an increase in industry growth isolates the change attributed solely to an increase in the quantity of units sold Answer: D Diff: 3 Terms: growth component Objective: 4 AACSB: Reflective thinking 86) When analyzing the change in operating income, the strategy component of price-recovery: A) calculations are similar to the efficiency-variance calculations B) compares the C) change in output price with the changes in input prices will report a D) large positive amount when a company has successfully pursued the cost leadership strategy isolates the change attributed solely to an increase in production efficiencies Answer: B Diff: 3 Terms: price-recovery component Objective: 4 AACSB: Reflective thinking 87) When analyzing the change in operating income, the strategy component of productivity: A) calculations are similar to the sales-volume variance calculations B) compares the C) change in output price with the changes in input prices will report a D) large positive amount when a company has successfully pursued the cost leadership strategy isolates the change attributed solely to an increase in the quantity of units sold Answer: C Diff: 3 Terms: productivity component Objective: 4 AACSB: Reflective thinking 88) When analyzing the change in operating income, the strategy component of growth will increase when: A) capacity is B) reduced production C) efficiencies are successfully implemented selling prices are increased D) more units are sold Answer: D Diff: 3 Terms: growth component Objective: 4 AACSB: Reflective thinking 89) When analyzing the change in operating income, the strategy component of price-recovery will increase when: A) capacity is B) reduced production C) efficiencies are successfully implemented selling prices are increased D) more units are sold Answer: C Diff: 3 Terms: price-recovery component Objective: 4 AACSB: Reflective thinking 90) When analyzing the change in operating income, the strategy component of productivity will increase when: A) capacity is B) reduced quality is C) enhanced selling prices are increased D) more units are produced and sold Answer: A Diff: 3 Terms: productivity component Objective: 4 AACSB: Reflective thinking 91) Successfu l implementation of a cost leadership strategy will result in: A) large favorable growth and price-recovery components B) large favorable price-recovery and productivity components C) large favorable productivity and growth components D) only a large favorable growth component Answer: C Diff: 3 Terms: productivity component, growth component, cost leadership Objective: 4 AACSB: Reflective thinking 92) Successfu l implementation of a product differentiation strategy will result in: A) a large B) favorable growth and price-recovery components a large C) favorable price-recovery and productivity components a large D) favorable productivity and growth components only a large favorable growth component Answer: A Diff: 3 Terms: growth component, price-recovery component, product differentiation Objective: 4 AACSB: Reflective thinking 93) The revenue effect of growth is calculated by multiplying the difference in units sold (current year minus the previous year) by ________. A) selling price in the current year B) selling price in the previous year C) gross profit in the previous year D) gross profit in the current year Answer: B Diff: 3 Terms: growth component Objective: 4 AACSB: Reflective thinking 94) The revenue effect of price recovery is calculated by multiplying the difference in selling price (current year minus the previous year) by ________. A) actual units sold in the current year B) budgeted units sold in the previous year C) budgeted units sold in the current year D) actual units sold in the previous year Answer: A Diff: 3 Terms: growth component, price-recovery component, productivity component Objective: 4 AACSB: Reflective thinking 95) An revealed the following: operating income Operating income for 2005 $500,000 analysis Add growth component 25,000 of Sara Deduct price-recovery component (15,000) McCullou Add productivity component 60,000 gh Operating income for 2006 $570,000 Incorporat ed McCullough's operating income gain is consistent with the: A) product B) differentiation strategy downsizing C) strategy reengineering strategy D) cost leadership strategy Answer: D Diff: 2 Terms: cost leadership; growth, pricerecovery, productivity component Objective: 4 AACSB: Reflective thinking 96) An the following: operating income Operating income for 2005 $500,000 analysis Add growth component 15,000 of Deb Add price-recovery component 100,000 Schmidt Deduct productivity component (8,000) Incorporat Operating income for 2006 $607,000 ed revealed Schmidt's operating income gain is consistent with the: A) product B) differentiation strategy downsizing C) strategy reengineering strategy D) cost leadership strategy Answer: A Diff: 2 Terms: product diff; growth, pricerecovery, and productivity component Objective: 4 AACSB: Reflective thinking Answer the following questions using the information below: Bugos Company makes a household appliance with model number XX300. The goal for 20X4 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of XX300 units that can be produced. The industry market size for appliances increased 5% from 20X3 to 20X4. The following additional data are available for 20X3 and 20X4: 20X3 10,000 $100 30,000 $10 12,500 $250,000 $20 20X4 10,500 $95 29,000 $11 12,000 $240,000 $20 Units of XX300 produced and sold Selling price Direct materials (square feet) Direct material costs per square foot Manufacturing capacity for XX300 (units) Total conversion costs Conversion costs per unit of capacity 97) What is operating income for 20X3? A) $450,000 B) $1,000,000 C) $750,000 D) $700,000 Answer: A Explanation: A) ( Diff: 2 T 4 AACSB: Analytical skills 98) What is operating income for 20X4? A) $997,500 B) $678,500 C) $438,500 D) $428,500 Answer: C Explanation: C) ( Diff: 2 T 4 AACSB: Analytical skills 99) Which strategy is Bugos Corporation pursuing? A) Product B) differentiation, because the units produced and sold increased. Product C) differentiation, because total conversion costs decreased. Cost leadership, because direct material costs per square foot increased. D) Cost leadership, because the selling price decreased. Answer: D Diff: 2 Terms: cost leadership Objective: 1 AACSB: Analytical skills 100) Overall, was Bugos' strategy successful in 20X4? A) No, because the selling price per unit decreased. B) No, because C) operating income decreased. Yes, because D) less direct materials were used. Yes, because more units were produced and sold. Answer: B Explanation: B) ( Diff: 3 T $ 4 AACSB: Analytical skills Answer the following questions using the information below: Bugos Company makes a household appliance with model number XX300. The goal for 20X4 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of XX300 units that can be produced. The industry market size for appliances increased 5% from 20X3 to 20X4. The following additional data are available for 20X3 and 20X4: 20X3 10,000 $100 30,000 $10 12,500 $250,000 $20 20X4 10,500 $95 29,000 $11 12,000 $240,000 $20 Units of XX300 produced and sold Selling price Direct materials (square feet) Direct material costs per square foot Manufacturing capacity for XX300 (units) Total conversion costs Conversion costs per unit of capacity 101) What is the revenue effect of the growth component? A) $2,500 U B) $52,500 U C) $47,500 F D) $50,000 F Answer: D Explanation: D) ( Diff: 2 T 4 AACSB: Analytical skills 102) What is the cost effect of the growth component for direct materials? A) $15,000 U B) $10,000 U C) $10,000 F D) $16,500 F Answer: A Explanation: A) 3 Diff: 3 T 4 AACSB: Analytical skills 103) What is the cost effect of the growth component for conversion costs? A) $12,500 U B) Zero C) $10,000 U D) $10,000 F Answer: B Explanation: B) ( Diff: 3 T 4 AACSB: Analytical skills 104) What is the net effect on operating income as a result of the growth component? A) Operating B) income increased due to increased market share. Operating C) income decreased due to increased market share. Operating D) income increased due to industry growth. Operating income decreased due to industry growth. Answer: C Explanation: C) ( Diff: 3 T $ 4 AACSB: Analytical skills Answer the following questions using the information below: Bugos Company makes a household appliance with model number XX300. The goal for 20X4 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of XX300 units that can be produced. The industry market size for appliances increased 5% from 20X3 to 20X4. The following additional data are available for 20X3 and 20X4: 20X3 10,000 $100 30,000 $10 12,500 $250,000 $20 20X4 10,500 $95 29,000 $11 12,000 $240,000 $20 Units of XX300 produced and sold Selling price Direct materials (square feet) Direct material costs per square foot Manufacturing capacity for XX300 (units) Total manufacturing conversion costs Manufacturing conversion costs per unit of capacity 105) What is the revenue effect of the price-recovery component? A) $2,500 U B) $52,500 U C) $47,500 F D) $50,000 F Answer: B Explanation: B) ( Diff: 2 T 4 AACSB: Analytical skills 106) What is the cost effect of the price-recovery component? A) $29,000 F B) $30,000 U C) $1,000 F D) $31,500 U Answer: D Explanation: D) 3 Diff: 3 T 4 AACSB: Analytical skills 107) What is the net effect on operating income as a result of the price-recovery component? A) decreased B) operating income due to decreased selling price and inability to recover increased costs decreased C) operating income due to the inability to recover increased costs increased D) operating income due to the increased number of units produced and sold increased operating income due to the revenue effect of the price-recovery component Answer: A Explanation: A) ( 3 [ $ price-recovery component Objective: 4 AACSB: Analytical skills 108) What is the net effect on operating income as a result of the productivity component? A) decreased B) operating income due to direct material inefficiencies only decreased C) operating income due to direct material inefficiencies and capacity reduction increased D) operating income due to direct material efficiencies and capacity reduction increased operating income due to direct material efficiencies only Answer: C Explanation: C) 3 Diff: 3 T 4 AACSB: Analytical skills Answer the following questions using the information below: Following a strategy of product differentiation, Lucas Company makes a high-end Appliance, AP15. Lucas Company presents the following data for the years 20X3 and 20X4: 20X3 20X4 20,000 21,000 $200 $220 60,000 61,500 $20 $22 25,000 25,000 $1,000,000 $1,110,000 $40 $44 60 58 $360,000 $362,500 $6,000 $6,250 Units of AP15 produced and sold Selling price Direct materials (square feet) Direct materials costs per square foot Manufacturing capacity in units of AP15 Total conversion costs Conversion costs per unit of capacity Selling and customer-service capacity (customers) Total selling and customer-service costs Selling and customer-service capacity cost per customer Lucas Company produces no defective units but it wants to reduce direct materials usage per unit of AP15 in 20X4. Manufacturing conversion costs in each year depend on production capacity defined in terms of AP15 units that can be produced. Selling and customer-service costs depend on the number of customers that the customer and service functions are designed to support. Lucas Company has 46 customers in 20X3 and 50 customers in 20X4. The industry market size for high-end appliances increased 5% from 20X3 to 20X4. 109) What is operating income for 20X3? A) $364,500 B) $1,804,500 C) $1,440,000 D) $200,000 Answer: C Explanation: C) ( Diff: 2 T 4 AACSB: Analytical skills 110) What is operating income in 20X4? A) $1,440,000 B) $1,804,500 C) $364,500 D) $200,000 Answer: B Explanation: B) ( Diff: 2 T 4 AACSB: Analytical skills 111) What is the change in operating income from 20X3 to 20X4? A) $1,440,000 F B) $1,804,500 F C) $364,500 F D) $200,000 F Answer: C Explanation: C) ( Diff: 2 T $ 4 AACSB: Analytical skills 112) What is the revenue effect of the growth component? A) $220,000 F B) $420,000 F C) $400,000 F D) $200,000 F Answer: D Explanation: D) ( Diff: 2 T 4 AACSB: Analytical skills 113) What is the cost effect of the growth component? A) $60,000 U B) $140,000 F C) $60,000 F D) $200,000 F Answer: A Explanation: A) [ Diff: 3 T 4 AACSB: Analytical skills 114) What is the net effect on operating income as a result of the growth component? A) $60,000 U B) $140,000 F C) $60,000 F D) $200,000 F Answer: B Explanation: B) ( Diff: 3 T $ 4 AACSB: Analytical skills 115) What is the revenue effect of the price-recovery component? A) $220,000 F B) $420,000 F C) $400,000 F D) $200,000 F Answer: B Explanation: B) ( Diff: 2 T 4 AACSB: Analytical skills 116) What is the cost effect of the price-recovery component? A) $179,000 F B) $179,000 U C) $241,000 U D) $420,000 F Answer: C Explanation: C) [ Diff: 3 T 4 AACSB: Analytical skills 117) What is the net effect on operating income as a result of the price-recovery component? A) $179,000 F B) $179,000 U C) $241,000 U D) $420,000 F Answer: A Explanation: A) ( Diff: 3 T $ 4 AACSB: Analytical skills 118) What is the net effect on operating income as a result of the productivity component? A) $179,000 F B) $45,500 F C) $241,000 U D) $420,000 F Answer: B Explanation: B) [ Diff: 3 T 4 AACSB: Analytical skills 119) An analysis of Ragan, Inc.'s operating income for the last two years showed the following: Operating income for 2005 Add growth component Add price-recovery component Deduct productivity component Operating income for 2006 This gain in operating income is consistent with a: A) $600,000 15,000 100,000 (8,000) $707,000 downsizing B) strategy reengineering strategy C) product D) differentiation strategy cost leadership strategy Answer: C Diff: 2 Terms: price-recovery component, growth component, productivity component Objective: 4 AACSB: Analytical skills 120) Engineere d costs: A) arise from B) periodic (usually annual) decisions often incur a C) delay between when the resource is acquired and when it is used includeR&D and human resource costs D) include a high level of certainty Answer: D Diff: 2 Terms: engineered costs Objective: 5 AACSB: Reflective thinking 121) Discretion ary costs: A) result from a B) cause-and-effect relationship between the output and the input include C) advertising and executive training costs can be variable or fixed in the short run D) pertain to processes that are detailed Answer: B Diff: 2 Terms: discretionary costs Objective: 5 AACSB: Reflective thinking 122) A high level of uncertainty is represented in: A) engineered B) costs discretionary C) costs both engineered and discretionary costs D) neither engineered nor discretionary costs Answer: B Diff: 1 Terms: discretionary costs Objective: 5 AACSB: Reflective thinking 123) A high level of precision between resources used and output produced exists with: A) engineered B) costs discretionary C) costs both engineered and discretionary costs D) neither engineered nor discretionary costs Answer: A Diff: 1 Terms: engineered costs Objective: 5 AACSB: Reflective thinking 124) Discretion ary costs: A) have detailed B) processes are physically observable activities C) possess a high level of certainty D) are usually large total amounts Answer: D Diff: 2 Terms: discretionary costs Objective: 5 AACSB: Reflective thinking 125) Engineere d costs: A) possess a high of level uncertainty B) are C) nonrepetitive are from D) physically observable activities have processes that are sketchy or unavailable Answer: C Diff: 2 Terms: engineered costs Objective: 5 AACSB: Reflective thinking 126) Conversio n costs are an example of ________. A) direct B) engineered costs indirect C) engineered costs discretionary D) costs unused capacity costs Answer: B Diff: 2 Terms: engineered costs Objective: 5 AACSB: Reflective thinking 127) Managers can reduce capacity-based fixed costs by measuring and managing ________. A) unused capacity B) variable costs C) engineered D) costs discretionary costs Answer: A Diff: 2 Terms: unused capacity, discretionary costs Objective: 5 AACSB: Reflective thinking 128) Unused capacity is difficult to determine for: A) engineered B) costs discretionary C) costs both engineered and discretionary costs D) neither engineered nor discretionary costs Answer: B Diff: 2 Terms: discretionary costs Objective: 6 AACSB: Reflective thinking 129) To effectively deal with unused capacity a company: A) may downsize B) may retain C) some unused capacity for future growth should consider it a waste of resources and eliminate all unused capacity D) Both A and B are correct. Answer: D Diff: 2 Terms: downsizing, unused capacity Objective: 6 AACSB: Reflective thinking 130) Downsizi ng: A) may include B) eliminating jobs should be done within the context of a company's overall strategy C) is most difficult with discretionary costs D) All of these answers are correct. Answer: D Diff: 2 Terms: downsizing Objective: 6 AACSB: Reflective thinking 131) Rightsizin g is another term for: A) growth B) management downsizing C) pricerecovery analysis D) cost recovery analysis Answer: B Diff: 2 Terms: downsizing Objective: 6 AACSB: Reflective thinking 132) What actions can management take when unused capacity is identified? A) eliminate the B) unused capacity attempt to grow to utilize the unused capacity C) Both A and B are correct. D) Neither A nor B are correct. Answer: C Diff: 2 Terms: downsizing, unused capacity Objective: 6 AACSB: Reflective thinking 133) The lower the inputs for a given set of outputs or the higher the outputs for a given set of inputs, the higher the level of: A) standard costs B) sales C) productivity D) labor costs Answer: C Diff: 1 Terms: productivity Objective: A AACSB: Reflective thinking 134) Yield variances: A) reveal the effect of substitution within a single factor of production B) address the C) productivity of a single component of one factor of production capture both D) substitutions between factors of production as well as within factors of production reveal the effect of substitution within multiple factors of production Answer: B Diff: 3 Terms: productivity component Objective: A AACSB: Reflective thinking 135) Partial productivity multiplied by the quantity of input used results in: A) expected B) production budgeted output C) actual output D) a ratio Answer: C Diff: 3 Terms: partial productivity Objective: A AACSB: Reflective thinking 136) ________ measures the relationship between actual inputs used and actual outputs achieved. A) Total factor B) productivity Partial C) productivity Productivity D) Product yield variance Answer: C Diff: 1 Terms: productivity Objective: A AACSB: Reflective thinking 137) ________ compares the quantity of output produced with the quantity of a single input used. A) Total factor B) productivity Partial C) productivity Productivity D) Product yield variance Answer: B Diff: 1 Terms: partial productivity Objective: A AACSB: Reflective thinking 138) Frazier Budgeted input 19,500 Company Actual input 17,900 provided Budgeted production 20,000 the Actual production 19,000 following informati What is the partial productivity ratio? on: A) gallons gallons units units 0.97 units per gallon B) 1.02 units per gallon C) 1.06 units per gallon D) 1.12 units per gallon Answer: C Explanation: C) P Diff: 2 T A AACSB: Analytical skills 139) Germaine Budgeted input 9,750 Company Actual input 8,950 provided Budgeted production 10,000 the Actual production 9,500 following informati What is the partial productivity ratio? on: A) gallons gallons units units 0.97 units per gallon B) 1.02 units per gallon C) 1.06 units per gallon D) 1.12 units per gallon Answer: C Explanation: C) P Diff: 2 T A AACSB: Analytical skills 140) Melik Budgeted input 12,000 Company Actual input 15,000 provided Budgeted production 5,000 the Actual production 4,750 following informati What is the partial productivity ratio? on: A) gallons gallons units units 0.32 units per pound B) 0.33 units per pound C) 0.40 units per pound D) 3.16 units per pound Answer: A Explanation: A) P Diff: 2 T A AACSB: Analytical skills 141) Which of the following statements is TRUE? A) The lower the partial productivity ratio, the greater the productivity. B) Productivity has increased when the partial productivity is high. C) Prices of inputs are incorporated in the partial productivity ratio. D) The partial productivity ratio measures the number of outputs produced per multiple input. Answer: B Diff: 2 Terms: partial productivity, productivity Objective: A AACSB: Reflective thinking 142) What is manufacturing labor partial productivity, assuming 20,000 widgets were produced during 20X1 and 80,000 direct the direct manufacturing labor-hours were used? A) 0.25 unit per B) direct manufacturing labor-hour 0.50 unit per C) direct manufacturing labor-hour 0.75 unit per D) direct manufacturing labor-hour 1.00 unit per direct manufacturing labor-hour Answer: A Explanation: A) 2 Diff: 2 T A AACSB: Analytical skills 143) What is manufacturing labor partial productivity, assuming 10,000 units were produced during 20X1 and 40,000 direct the direct manufacturing labor-hours were used? A) 0.25 unit per B) direct manufacturing labor-hour 0.50 unit per C) direct manufacturing labor-hour 0.75 unit per D) direct manufacturing labor-hour 1.00 unit per direct manufacturing labor-hour Answer: A Explanation: A) 1 Diff: 2 T A AACSB: Analytical skills 144) What terms describe the relationship between different quantities of inputs consumed and the quantities of output produced? A) budgeted costs or actual costs B) production C) technology or production function static budget or flexible budget D) production technology or production setup Answer: B Diff: 2 Terms: productivity Objective: A AACSB: Reflective thinking 145) Total factor productivity will increase if: A) technical B) productivity occurs the company C) uses more total inputs per output the company D) incurs fewer costs per input current technology becomes obsolete Answer: A Diff: 3 Terms: total factor productivity (TFP) Objective: A AACSB: Reflective thinking 146) One problem with total factor productivity revolves around which of the following? A) the B) measurement of combined productivity of all inputs the control C) operations personnel have over inputs the control D) operations personnel have over outputs the marketing mix determined by management Answer: A Diff: 2 Terms: total factor productivity (TFP) Objective: A AACSB: Reflective thinking 147) ________ ratio of the quantity of output produced to the costs of all inputs used, where the inputs are combined on the basis of is the current period prices. A) Total factor B) productivity Partial C) productivity Productivity D) Product yield variance Answer: A Diff: 1 Terms: total factor productivity (TFP) Objective: A AACSB: Reflective thinking 148) The partial productivity of overhead resources can be measured by considering the cost driver as: A) budgeted input B) the denominator C) the fixed input D) the numerator Answer: D Diff: 3 Terms: partial productivity Objective: A AACSB: Reflective thinking 149) Which of the following statements about productivity measures is FALSE? A) It may be stated in terms of dollars. B) It provides a C) convenient and easily interpreted means of aggregating across different physical outputs. The D) productivity measure may not be made for companies with multiple products. The key is the identification of cost drivers. Answer: C Diff: 2 Terms: productivity Objective: A AACSB: Reflective thinking 150) The average number of student credit hours taught per faculty member is an example of a(n): A) expected B) performance measure budgeted C) productivity measure standard D) productivity measure partial productivity measure Answer: D Diff: 3 Terms: partial productivity Objective: A AACSB: Reflective thinking 151) Bosely strategy. The first step for Bosely is to perform an industry analysis. You have been hired to help the company go through Corporati the strategy formulation process. on is reviewing Required: its To perform the industry analysis, what areas should Bosely focus on and give at least one example of how Bosely can business effectively deal with each area. Answer: The industry analysis is composed of five areas: 1. Competitors How competitive is the industry for Bosely's particular product ? They can differentiate the product to reduce competition. 2. Potential entrants to the market - How easy is it for new competitors to join the market? Create barriers to entry, such as high capital requirements. 3. Equivalent products - Is there a substitute product available? Make continuous product improvements to reduce likelihood of equivalent products. 4. Bargaining power of customers How many suppliers can customers access? Try to negotiate long-term purchase agreements. 5. Bargaining power of input suppliers - How many raw material vendors are there? Try to find alternative suppliers and negotiate the best price for raw materials. Diff: 3 Terms: five force industry analysis Objective: 1 AACSB: Reflective thinking 152) Buck Corporati on plans to grow by offering a computer monitor, the CM3000 that is superior and unique from the competition. Buck believes that putting additional resources into R&D and staying ahead of the competition with technological innovations are critical to implementing its strategy. Required: a. Is Buck's strategy one of product differentiation or cost leadership? Explain briefly. Identify at least one key element that you would expect to see included in the balanced scorecard b. for the financial perspective. c. for the customer perspective. d. for the internal business process perspective. e. for the learning and growth perspective. Answer: a. Buck's strategy is one of product differentiation because the company plans to offer a product that is superior and unique from the competition. The company's balanced scorecard should describe the product differentiation strategy. Key elements should include: b. operating income growth from charging higher margins for CM3000 for the financial perspective c. market share in the high-end monitor market, customer satisfaction, and new customers for the customer perspective d. manufacturing quality, new product features added, and order delivery time for the internal business perspective e. development time for new features, improvements in manufacturing technologies, employee education and skill levels, and employee satisfaction for the learning and growth perspective Diff: 2 Terms: cost leadership, product differentiation, balanced scorecard Objective: 1, 3 AACSB: Use of Information Technology 153) Maloney bottles at a low cost that are delivered in a timely manner. There are a number of other manufacturers who produce similar Corporati water bottles. Maloney believes that continuously improving its manufacturing processes and having satisfied employees on are critical to implementing its strategy. manufact ures Required: plastic water a. Is Maloney's strategy one of product differentiation or cost leadership? Explain briefly. bottles. It plans to Identify at least one key element that you would expect to see included in the balanced scorecard grow by producing b. for the financial perspective. highc. for the customer perspective. quality d. for the internal business process perspective. water e. for the learning and growth perspective. Answer: a. Maloney's strategy is one of cost leadership because there are a number of other manufacturers who produce similar water bottles. To succeed, Maloney will have to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost controls. The company's balanced scorecard should describe the product differentiation strategy. Key elements should include: b. operating income growth from productivity gains and growth for the financial perspective c. growth in market share, new customers, customer responsiveness, and customer satisfaction for the customer perspective d. yield, time to complete customer jobs, and order delivery time for the internal business perspective e. number of process improvements, hours of employee training, and satisfaction for the learning and growth perspective Diff: 2 Terms: cost leadership, product differentiation, balanced scorecard Objective: 1, 3 AACSB: Analytical skills 154) For each : financial, customer, internal-business-process, or learning-and growth. of the following 1. service response time measures, 2. market share identify 3. gross margin percentage which 4. defect rates perspectiv 5. customer satisfaction e of the 6. information system availability balanced 7. new-product development time scorecard 8. economic value added it 9. employee education represents 10. manufacturing downtime Answer: 1. internalbusiness-process 2. customer 3. financial 4. internalbusiness-process 5. customer 6. learning-andgrowth 7. internalbusiness-process 8. financial 9. learning-andgrowth 10. internalbusiness-process Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Analytical skills 155) An analysis of Gardner Corporati on's operating income changes between 2005 and 2006 show the following: Operating income for 2005 Add growth component Deduct price-recovery component Add productivity component Operating income for 2006 Required: Is Gardner's operating income gain consistent with the product differentiation or cost leadership strategy? Explain briefly. Answer: $1,000,000 50,000 (30,000) 120,000 $1,140,000 Gardner's operating income gain is consistent with the cost leadership strategy because the increase in operating income was driven by the $120,000 gain in productivity. It appears that Gardner took advantage of its productivity gain to reduce prices and to fuel growth. Diff: 2 Terms: cost leadership, product differentiation Objective: 1, 4 AACSB: Analytical skills 156) An analysis of Louis Brown Corporati on's operating income changes between 2005 and 2006 show the following: Operating income for 2005 Add growth component Add price-recovery component Deduct productivity component Operating income for 2006 Required: Is Louis Brown's operating income gain consistent with the product differentiation or cost leadership strategy? Explain briefly. Answer: $1,000,000 30,000 200,000 (10,000) $1,220,000 Louis Brown's operating income gain is consistent with the product differentiation strategy because the increase in operating income was driven by the $200,000 gain in the price-recovery component. It appears that Brown's superior quality stimulated slight growth and allowed it to charge a price premium for its products. Diff: 2 Terms: cost leadership, product differentiation Objective: 1, 4 AACSB: Reflective thinking 157) Following 20X3 20X4 a strategy Units of CM12 produced and sold 5,000 5,500 of product Selling price $400 $440 differentia Direct materials (pounds) 15,000 15,375 tion, Direct materials costs per pound $40 $44 Ernsting Manufacturing capacity for CM12 (units) 10,000 10,000 Corporati Conversion costs $1,000,000 $1,100,000 on makes Conversion costs per unit of capacity $100 $110 a highSelling and customer-service capacity (customers) 60 58 end Total selling and customer-service costs $360,000 $362,500 computer Selling and customer-service capacity cost per customer $6,000 $6,250 monitor, CM12. Ernsting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM12 in 20X4. Ernsting Manufacturing conversion costs in each year depend on production capacity defined in terms of CM12 units that can be Corporati produced. Selling and customer-service costs depend on the number of customers that the customer and service functions on are designed to support. Ernsting Corporation has 46 customers in 20X3 and 50 customers in 20X4. The industry market presents size for high-end computer monitors increased 5% from 20X3 to 20X4. the following Required: data for the years a. What is operating income for 20X3? 20X3 and b. What is operating income in 20X4? 20X4: c. What is the change in operating income from 20x3 to 20X4? Answer: a. ($400 × 5,000) [($40 × 15,000) + ($100 × 10,000) + ($6,000 × 60)] = $40,000 b. ($440 × 5,500) [($44 × 15,375) + ($110 × 10,000) + ($6,250 × 58)] = $281,000 c. $40,000 $281,000= $241,000 F Diff: 2 Terms: operating income Objective: 4 AACSB: Analytical skills 158) Following 20X3 20X4 a strategy Units of CM12 produced and sold 5,000 5,500 of product Selling price $400 $440 differentia Direct materials (pounds) 15,000 15,375 tion, Direct materials costs per pound $40 $44 Ernsting Manufacturing capacity for CM12 (units) 10,000 10,000 Corporati Conversion costs $1,000,000 $1,100,000 on makes Conversion costs per unit of capacity $100 $110 a highSelling and customer-service capacity (customers) 60 58 end Total selling and customer-service costs $360,000 $362,500 computer Selling and customer-service capacity cost per customer $6,000 $6,250 monitor, CM12. Ernsting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM12 in 20X4. Ernsting Manufacturing conversion costs in each year depend on production capacity defined in terms of CM12 units that can be Corporati produced. Selling and customer-service costs depend on the number of customers that the customer and service functions on are designed to support. Ernsting Corporation has 46 customers in 20X3 and 50 customers in 20X4. The industry market presents size for high-end computer monitors increased 5% from 20X3 to 20X4. the following Required: data for the years a. What is the revenue effect of the growth component? 20X3 and b. What is the cost effect of the growth component? 20X4: c. What is the net effect on operating income as a result of the growth component? Answer: a. (5,500 - 5,000) × $400 = $200,000 F b. 15,000 × 5,500 / 5,000 = 16,500; [(16,500 - 15,000) × $40] + [(10,000 10,000) × $100] + [(60 - 60) × $6,000] = $60,000 U c. $200,000 F + $60,000 U = $140,000 F Diff: 3 Terms: growth component Objective: 4 AACSB: Analytical skills 159) Following 20X3 20X4 a strategy Units of CM12 produced and sold 5,000 5,500 of product Selling price $400 $440 differentia Direct materials (pounds) 15,000 15,375 tion, Direct materials costs per pound $40 $44 Ernsting Manufacturing capacity for CM12 (units) 10,000 10,000 Corporati Conversion costs $1,000,000 $1,100,000 on makes Conversion costs per unit of capacity $100 $110 a highSelling and customer-service capacity (customers) 60 58 end Total selling and customer-service costs $360,000 $362,500 computer Selling and customer-service capacity cost per customer $6,000 $6,250 monitor, CM12. Ernsting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM12 in 20X4. Ernsting Manufacturing conversion costs in each year depend on production capacity defined in terms of CM12 units that can be Corporati produced. Selling and customer-service costs depend on the number of customers that the customer and service functions on are designed to support. Ernsting Corporation has 46 customers in 20X3 and 50 customers in 20X4. The industry market presents size for high-end computer monitors increased 5% from 20X3 to 20X4. the following Required: data for the years a. What is the revenue effect of the price-recovery component? 20X3 and b. What is the cost effect of the price-recovery component? 20X4: c. What is the net effect on operating income as a result of the price-recovery component? d. What is the net effect on operating income as a result of the productivity component? Answer: a. ($440 - $400) × 5,500 = $220,000 F b. 15,000 × 5,500 / 5,000 = 16,500; [($44 - $40) × 16,500] + [($110 $100) × 10,000] + [($6,250 - $6,000) × 60] = $181,000 U c. $220,000 F + $181,000 U = $39,000 F d. 15,000 × 5,500 / 5,000 = 16,500; [(15,375 - 16,500) × $44] + [(10,000 10,000) × $110] + [(58 - 60) × 6,250] = $62,000 F Diff: 3 Terms: productivity component Objective: 4 AACSB: Analytical skills 160) Power Company has been unhappy with the financial accountin g variances that its cost accountin g system has been producing , because its managers believe that there is more to evaluating an operation than just examining accounting numbers. Therefore, it has started gathering data to assist in the examination of nonfinancial results of operations. The following information relates to the manufacture of remote control units for televisions, radios, and stereo components: 20X1 20X2 Remote control units produced and sold 40,000 50,000 Direct manufacture labor-hours 6,000 6,600 Direct materials used (sets) 40,300 50,250 Direct manufacture cost per hour $18 $20 Direct materials cost per set $31 $32 Required: a. What is the partial productivity of direct materials for each year? b. What is the partial productivity of direct manufacturing labor for each year? c. Did each area improve between 20X1 and 20X2? Explain. d. What will be the projected direct material and labor needs for 20X3 if remote control units increase by 6,000 units, assuming Power Company applies the constant returns to scale technology? Answer: a. 20X1 Partial productivity of direct materials = 40,000/40,300 = 0.993 20X2 Partial productivity of direct materials = 50,000/50,250 = 0.995 b. 20X1 Partial productivity direct manufacturing labor = 40,000/6,000 = 6.67 20X2 Partial productivity direct manufacturing labor = 50,000/6,600 = 7.58 c. Yes, both areas showed improvement because the ratios went up. d. Production increase = 6,000/50,000 = 12 percent Projected direct material sets = 50,250 × 1.12 = 56,280 sets Projected direct manufacturing labor = 6,600 × 1.12 = 7,392 hours Diff: 2 Terms: partial productivity Objective: A AACSB: Analytical skills 161) Grader Company manufact ures road graders. Because its managers all have engineeri ng backgrou nds, they prefer nonfinanc ial information for their decision-making models. Therefore, they require the accountants gather data to assist in the examination of nonfinancial results of operations. The following information relates to the manufacture of a paver: 20X1 3,400 68,000 14,500 $21 $431 20X2 2,800 57,600 12,200 $22 $443 Units produced and sold Direct manufacture labor-hours Direct materials used (tons) Direct manufacture cost per hour Direct materials cost per ton Required: a. What is the partial productivity for direct materials for each year? b. What is the partial productivity for direct manufacturing labor for each year? c. What is the total factor productivity for each year? Answer: a. 20X1 Partial productivity of direct materials = 3,400/14,500 = 0.234 20X2 Partial productivity of direct materials = 2,800/12,200 = 0.230 b. 20X1 Partial productivity for direct manufacturing labor = 3,400/68,000 = 0.050 20X2 Partial productivity for direct manufacturing labor = 2,800/57,600 = 0.049 c. 20X1 Direct materials = 14,500 × $431 = $6,249,500 Direct manufacturing labor = 68,000 × $21 = 1,428,000 Total $7,677,500 20X2 Direct materials = 12,200 × $443 = $5,404,600 Direct mfg. labor = 57,600 × $22 = 1,267,200 Total $6,671,800 20X1 Total factor productivity = 3,400/$7,677,500 = 0.00044 20X2 Total 2,800/$6,671,800 = Diff: 3 Terms: partial productivity, total factor productivity (TFP) Objective: A AACSB: Analytical skills 162) Fairytale gowns in its Perth plant: Weddings manufact 20X1 20X2 ures Units produced and sold 43,000 52,600 wedding Direct manufacture labor-hours 22,000 26,000 dresses. Direct materials used (square yards) 130,000 152,000 The Direct manufacture cost per hour $16 $17 following Direct materials cost per yard $10 $11 informati on relates Required: to the manufact Prepare an analysis of change in annual costs from 20X1 to 20X2 including direct materials, direct manufacturing labor, ure of and total inputs. Answer: Direct materials: Actual 20X1 costs: 130,000 × $10 = $1,300,000 20X1 input for 20X2 output: 130,000 × 52,600/43,000 × $10 = 1,590,233 Output adjustment $ 290,233 U 20X1 input for 20X2 output: = $1,590,233 20X1 input with 20X2 costs: 130,000 × 52,600/43,000 × $11 = 1,749,256 Input price change $ 159,023 U 20X1 input with 20X2 costs: = $1,749,256 20X2 costs: 152,000 × $11 = 1,672,000 Productivity change $ 77,256 F Direct manufacturing labor: Actual 20X1 costs: 22,000 × $16 = $352,000 20X1 input for 20X2 output: 22,000 × 52,600/43,000 × $16 = 430,586 Output adjustment $ 78,586 U 20X1 input for 20X2 output: = $430,586 20X1 input with 20X2 costs: 22,000 × 52,600/43,000 × $17 = 457,498 Input price change $ 26,912 U 20X1 input with $457,498 20X2 costs: 26,000 × $17 = 442,000 Productivity change $ 15,498 F All inputs: Output adjustment: $290,233 U + $78,586 U = $368,819 U Input price change: $159,023 U + $26,912 U = $185,935 U Productivity change: $77,256 F + $15,498 F = $ 92,754 F Diff: 3 Terms: productivity, partial productivity Objective: A AACSB: Analytical skills 163) Explain the product differentiation and the cost leadership strategies. Answer: Product differentiation is 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. Cost leadership is an organization's ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control. Diff: 3 Terms: cost leadership, product differentiation Objective: 1 AACSB: Reflective thinking 164) What is reengineering. Can you contrast a reengineering approach to change with a kaizen approach to change? Answer: Reengineering is the rethinking of business processes, such as the order delivery process, to improve critical performance measures such as cost, quality, or customer satisfaction. It can be contrasted to a kaizen approach to change in that reengineering is most often a sudden, drastic change, while a kaizen approach involves small, incremental but continual improvements. Diff: 2 Terms: reengineering Objective: 2 AACSB: Analytical skills 165) What is the primary purpose of the balanced scorecard? Answer: The primary purpose of the balanced scorecard is to translate an organization's mission and strategy into a set of performance measures that put that strategy into action with clearlystated objectives, measures, targets, and initiatives. Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Analytical skills 166) What are the four key perspectives in the balanced scorecard? Answer: The four key perspectives in the balanced scorecard are: a. the financial perspective, b. the customer perspective, c. the internal business processes perspective, and d. the learning and growth perspective. Diff: 2 Terms: Balanced Scorecard Objective: 3 AACSB: Reflective thinking 167) Describe three key components in performing a strategic analysis of operating income. Answer: The three key components in performing a strategic analysis of operating income include: a. the growth component, which measures the change in operating income attributable solely to an increase in the quantity of output sold from one year to the next. b. the pricerecovery component, which measures the change in operating income attributable solely to changes in the prices of the inputs and the outputs from one year to the next. c. the productivity component, which measures the change in costs attributable to a change in the quantity of inputs used in the current year relative to the quantity of inputs that would have been used in the previous year to produce current year output. Diff: 2 Terms: growth component, price-recovery component, productivity component Objective: 4 AACSB: Reflective thinking 168) Define engineered and discretionary costs and give two examples of each. Answer: An engineered cost results from a causeand-effect relationship between the cost driver output and the resources used to produce that output. An example of an engineered cost would be direct materials in the production of products. Other examples of engineered costs might include shipping costs or electrical costs. A discretionary cost has two features. The first feature is that the cost arises from a periodic decision regarding the amount of cost to be incurred. The second feature is that no measurable cause-and-effect relationship exists between the output and the resources used. An example of a discretionary cost would be the cost of advertising for a product, the amount spent on researching new products, or employee training expenses. Diff: 2 Terms: engineered costs, discretionary costs Objective: 5 AACSB: Reflective thinking 169) Can a company identify unused capacity and, if so, how can unused capacity be managed? Answer: It is relatively easy for a company to recognize unused capacity for engineered costs, but it is more difficult for a company to recognize unused capacity for discretionary costs. Downsizing, or rightsizing, is an approach to managing unused capacity by matching costs to the activities that need to be performed. Diff: 2 Terms: engineered costs, discretionary costs, downsizing, rightsizing Objective: 6 AACSB: Reflective thinking 170) Ralph Company has been very aggressiv e in developin g various types of financial and nonfinancial measurement schemes to help with the evaluation of its manufacturing processes. It appears that some of the managers are suboptimizing in that their decision processes are geared solely for their department's benefit, sometimes to the detriment of the organization as a whole. Required: What changes in the evaluation system could the company implement to help minimize the suboptimization of the managers' decision-making process? Answer: The company could implement a total factor productivity concept. Its major advantage is that it measures the combined productivity of all inputs to produce outputs and, therefore, explicitly evaluates substitution among inputs. For example, if buying a cheap material makes the cost of materials look favorable but causes more laborhours, therefore causing labor costs to be unfavorable, suboptimization may be occurring. The total factor productivity takes into account both the materials costs and the labor costs and if they offset each other, that is fine, but if they do not offset, then the variance will be so noted. Diff: 2 Terms: total factor productivity (TFP) Objective: A AACSB: Reflective thinking 171) Total factor productivity (TFP) is easy to compute for a single-product company. When dealing with a multiproduct company, one of two adjustments must be made. What are these potential adjustments? Answer: One of the following two adjustments must be made in the TFP calculations: 1. Convert the outputs from physical measures to a dollar value common denominator, analogous to the multiple input case. 2. Allocate the input costs to the different outputs. This is appropriate when the inputs can be reasonably allocated to the different outputs. Diff: 2 Terms: total factor productivity (TFP) Objective: A AACSB: Reflective thinking ...
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This note was uploaded on 09/18/2010 for the course ACCT 424 taught by Professor All during the Spring '10 term at DeVry Long Beach.

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