Ch.7 – Complete Test Bank – Measuring and Managing Process

Chapter 7

Measuring and Managing

Process Performance

Learning Objectives―Coverage by question type

LO1 – Understand the plan-do-check-act (PDCA) cycle and its relationship to management accounting information.

True / False Multiple Choice Exercises, Problems & Short Answer

1-3 1-6 1

LO2 – Explain the theory of constraints.

True / False Multiple Choice Exercises, Problems & Short Answer

4 7-14 None

LO3 – Compare the different types of facilities layouts: process, product, and group technology.

True / False Multiple Choice Exercises, Problems & Short Answer

5-9 15-24 2, 3

LO4 – Explain lean manufacturing.

True / False Multiple Choice Exercises, Problems & Short Answer

10-11 25, 26 None

LO5 – Describe the concept of the cost of quality.

True / False Multiple Choice Exercises, Problems & Short Answer

12 27-31 4, 5

LO6 – Demonstrate the value of just-in-time manufacturing systems.

True / False Multiple Choice Exercises, Problems & Short Answer

13-15 32-35 6-8

Continued

LO7 – Explain kaizen costing.

True / False Multiple Choice Exercises, Problems & Short Answer

16-20 36-44 9, 10

LO8 – Discuss the various kinds of benchmarking approaches.

True / False Multiple Choice Exercises, Problems & Short Answer

21 45-48 11

LO9 – Calculate the cost savings resulting from reductions in inventories, reductions in production cycle time, improvements in production yields, and reductions in rework and defect rates.

True / False Multiple Choice Exercises, Problems & Short Answer

22, 23 49-58 None

Chapter 7: Measuring and Managing Process Performance

True / False

LO1

Terms: Plan-do-check-act cycle

Difficulty: 2

1. Quality expert, W. Edwards Deming, helped develop and disseminate the plan-do-check-act (PDCA) cycle.

Difficulty: 2

1. Many organizations start the planning stage by re-affirming or updating its mission statement.

Difficulty: 2

1. The check step in the Plan-Do-Check-Act (PDCA) cycle includes two components — measuring and monitoring ongoing performance and taking short-term actions based on the measured performance.

Difficulty: 1

1. The theory of constraints focuses on long-term initiatives to increase operating income.

Difficulty: 1

1. There are two general types of facility designs: process layouts and product layouts.

Difficulty: 2

1. The operating costs considered by the theory of constraints are all direct manufacturing costs, including direct materials and direct labor.

Difficulty: 1

1. The buildup of inventories decreases the cycle time of production.

Difficulty: 1

1. Process layouts are characterized by long production paths, high inventory levels and small batches of unique products.

Difficulty: 2

1. Processing cycle efficiency is calculated as processing time divided by the sum of processing time, moving time, storage time, and inspection time.

Difficulty: 1

1. Value is defined as any action or process for which a customer would be willing to pay.

Difficulty: 1

1. In lean manufacturing, any resource spending that does not create value for the end customer is wasteful and must be eliminated.

Difficulty: 1

1. Global competition led to the development of international quality standards such as ISO 9000 Standards.

Difficulty: 2

1. A processing cycle efficiency (PCE) of 14% indicates better efficiency than a PCE of 50%.

Difficulty: 1

1. When using a just-in-time manufacturing, a problem anywhere in the system can stop all production.

Difficulty: 1

1. Implementing a just-in-time manufacturing system requires a major cultural change for an organization.

Difficulty: 2

1. Under kaizen costing, cost reduction targets are set and applied monthly and continuous improvement (kaizen) methods are applied all year long to meet targets.

Difficulty: 1

1. Under traditional costing, supervisors and engineers are assumed to have superior knowledge about how to improve processes because they actually work with the manufacturing processes used to produce products.

Difficulty: 1

1. The goal of standard costing is to reduce costs through small, incremental changes.

Difficulty: 1

1. Kaizen costing assumes engineers and managers possess the best knowledge to improve processes and reduce costs.

Difficulty: 1

1. Kaizen costing requires relevant financial results to be shared with front-line employees.

Difficulty: 2

1. Benchmarking requires that organizational members first look to the best practices of other organizations for guidance on improving and then understand their current operations and approaches to conducting business,

Difficulty: 1

1. Work-in-process inventory generally decreases after the implementation of a just-in-time inventory system.

Difficulty: 1

1. Experience shows that it is more expensive to prevent defects than to detect and repair them.

Difficulty: 1

1. Which of the following is one of the elements in the act component of the plan-do-check-act cycle?
2. Lowering costs if necessary.
3. Revising the organization’s purpose to reflect current results.
4. Adjusting objectives to ensure that the current plan will meet them in the next period.
5. Developing reports to ensure that senior management receives its promised bonuses.

Difficulty: 2

1. _______ helped develop the Plan-Do-Check-Act (PDCA) cycle.

A) Hawthorne

B) Deming.

C) Carnegie

D) Ford

Difficulty: 2

1. Which of the following best represents the Plan step in the Plan-Do-Check-Act (PDCA) cycle?

A) Take actions to lower costs, change resource allocations, improve the quality, cycle time and flexibility of processes, modify the product mix, change customer relationships, and redesign and introduce new products.

B) Measure and monitor ongoing performance and take short-term actions based on the measured performance.

C) Define the organization's purpose and select the focus and scope of its strategy.

D) Implement the chosen course of action.

Difficulty: 2

1. Which of the following best represents the Do step in the Plan-Do-Check-Act (PDCA) cycle?

A) Take actions to lower costs, change resource allocations, improve the quality, cycle time and flexibility of processes, modify the product mix, change customer relationships, and redesign and introduce new products.

B) Measure and monitor ongoing performance and take short-term actions based on the measured performance.

C) Define the organization's purpose and select the focus and scope of its strategy.

D) Implement the chosen course of action.

Difficulty: 2

1. Which of the following best represents the Check step in the Plan-Do-Check-Act (PDCA) cycle?

A) Take actions to lower costs, change resource allocations, improve the quality, cycle time and flexibility of processes, modify the product mix, change customer relationships, and redesign and introduce new products.

B) Measure and monitor ongoing performance and take short-term actions based on the measured performance.

C) Define the organization's purpose and select the focus and scope of its strategy.

D) Implement the chosen course of action.

Difficulty: 2

1. Which of the following best represents the Act step in the Plan-Do-Check-Act (PDCA) cycle?

A) Take actions to lower costs, change resource allocations, improve the quality, cycle time and flexibility of processes, modify the product mix, change customer relationships, and redesign and introduce new products.

B) Measure and monitor ongoing performance and take short-term actions based on the measured performance.

C) Define the organization's purpose and select the focus and scope of its strategy.

D) Implement the chosen course of action.

Difficulty: 1

1. The theory of constraints:

A) emphasizes long-term optimization.

B) maintains that carefully managing production bottlenecks will increase operating income.

C) helps managers make special one-time decisions.

D) suggests that some component parts should be outsourced.

Difficulty: 1

1. Constraints from the theory of constraints may include:

A) the availability of direct materials in manufacturing.

B) linear square feet of display space for a retailer.

C) direct labor in the service industry.

D) All of the above are correct.

Difficulty: 2

1. Which model has the greatest contribution margin per unit?

A) base model

B) long model

C) trick model

D) both the base model and the long model

Difficulty: 2

1. Which model has the greatest contribution margin per machine-hour?

A) base model

B) long model

C) trick model

D) both the long model and the trick model

Difficulty: 2

1. If there is excess capacity, which model is the most profitable to produce?

A) base model

B) long model

C) trick model

D) both the base model and the long model

Difficulty: 2

1. If there is a machine breakdown, which model is the most profitable to produce?

A) base model

B) long model

C) trick model

D) both the long model and the trick model

Difficulty: 2

1. How can the Vice-president of sales encourage the company’s salespeople to promote the more profitable models?

A) Put all sales persons on salary.

B) Provide higher sales commissions for higher priced items.

C) Provide higher sales commissions for items with the greatest contribution margin per constrained resource.

D) Provide higher sales commissions for higher priced items and items with the greatest contribution margin per constrained resource.

Difficulty: 3

1. After the change, work-in-process inventory carrying costs are projected to decrease because of:

A) r educed costs in materials handling.

B) lower financing costs.

C) the decreased need for inventory storage.

D) All of the above are correct.

Difficulty: 1

1. In ________, all similar equipment or functions are grouped together.

A) a process layout

B) a product layout

C) cellular manufacturing

D) just-in-time production

Difficulty: 1

1. Characteristics of a process layout include:

A) continuous processing.

B) long production paths.

C) small amounts of inventory.

D) no work-in-process storage areas.

Difficulty: 1

1. In ________, equipment is organized to accommodate the production of a specific product.

A) a process layout

B) a product layout

C) cellular manufacturing

D) low-volume production

Difficulty: 1

1. Characteristics of a product layout include:

A) raw materials and purchased parts are delivered directly to the production line where they are needed.

B) low-volume production.

C) a U-shaped layout.

D) small batches of unique products.

Difficulty: 1

1. In ________, the plant is organized into areas where all machines used to manufacture a group of similar products are close to each other.

A) a process layout

B) a product layout

C) cellular manufacturing

D) just-in-time production

Difficulty: 1

1. Characteristics of cellular manufacturing include:

A) a layout that is usually circular like a cell.

B) increasing the number of employees needed to produce a product.

C) individual areas for employees so each can work independently without interruption.

D) a flexible layout that can be easily adjusted to make a different product.

Difficulty: 2

1. As a result of the layout reorganization, reduced levels of work-in-process inventory are projected to decrease inventory carrying costs annually by:

A) $1,100.

B) $3,750.

C) $4,400.

D) $5,500.

Difficulty: 2

1. As a result of the layout reorganization, incremental manufacturing costs are projected to:

A) decrease by $11,400 annually.

B) decrease by $12,500 annually.

C) increase by $12,500 annually.

D) increase by $20,000 annually.

Difficulty: 3

1. As a result of switching to a cellular manufacturing operation, total benefits are projected to increase annually by:

A) $111,400.

B) $113,600.

C) $136,400.

D) $138,600.

Difficulty: 2

1. After the change, sales are projected to increase because:

A) of shorter delivery lead times.

B) of higher sales prices.

C) of the ability to process larger batch sizes.

D) All of the above are correct.

Difficulty: 1

1. The quality movement was pioneered by:

A) Eli Whitney.

B) Henry Ford.

C) Edwards Deming.

D) Frederick Taylor.

Difficulty: 1

1. Lean manufacturing:

A) has a central philosophy that resource spending that does not add value must be eliminated.

B) defines value as any action or process for which the customer is willing to pay.

C) is derived from the Toyota Production System.

D) All of the above are correct.

Difficulty: 1

1. Quality engineering costs are an example of:

A) prevention costs.

B) appraisal costs.

C) internal failure costs.

D) external failure costs.

Difficulty: 1

1. Inspection costs of purchased parts and materials are examples of:

A) prevention costs.

B) appraisal costs.

C) internal failure costs.

D) external failure costs.

Difficulty: 1

1. The cost of reworking defective components is an example of:

A) prevention costs.

B) appraisal costs.

C) internal failure costs.

D) external failure costs.

Difficulty: 1

1. Warranty costs are an example of:

A) prevention costs.

B) appraisal costs.

C) internal failure costs.

D) external failure costs.

Difficulty: 1

1. _________ include the cost of raw-materials inspections and assembly-line inspections.

A) Prevention costs

B) Appraisal costs

C) Internal failure costs

D) External failure costs

Difficulty: 1

1. High levels of inventory result in all except:

A) high moving, handling, and storage costs.

B) increased product obsolescence and damage.

C) increased financing costs.

D) idle facilities.

Difficulty: 1

1. The implementation of just-in-time production results in all of the following except:

A) decreased cycle times.

B) reduced amount of waste.

C) a slower pace for employees.

D) structural changes.

Difficulty: 1

1. Characteristics of just-in-time manufacturing include all of the following except:

A) the ability to process items in large batches.

B) making a product only when the customer requires it.

C) no work-in-process inventories.

D) a problem anywhere can stop production.

Difficulty: 1

1. Measures of JIT (just-in-time) manufacturing reliability include all of the following except:

A) defect rates.

B) labor and machine utilization ratios.

C) cycle times.

D) percent of on-time deliveries.

Difficulty: 2

1. Kaizen costing includes:

A) cost control system concept.

B) standards set annually or semiannually.

C) continuous improvement.

D) comparing actual costs to standard costs.

Difficulty: 1

1. One goal of ________ is to design costs out of products in the research, development, and engineering stage.

A) cost-plus pricing

B) target costing

C) Kaizen costing

D) traditional costing

Difficulty: 1

1. ________ starts with the estimated product costs and next determines the estimated selling price.

A) Standard costing

B) Target costing

C) Kaizen costing

D) Traditional costing

Difficulty: 1

1. ________ starts with the estimated product costs and next adds the expected profit margin.

A) Cost-plus pricing

B) Target costing

C) Kaizen costing

D) Standard costing

Difficulty: 1

1. All the statements below are true regarding Kaizen costing except that:

A) cost-variance analysis compares target Kaizen costs with actual cost reduction amounts.

B) cost reductions apply to all variable costs.

C) workers are assumed to have the best knowledge to improve processes and reduce costs.

D) cost reduction targets are set and applied on an annual basis.

Difficulty: 1

1. Concerns about Kaizen costing include:

A) radical process improvements.

B) excessive pressures are put on employees.

C) focus is on the overall system.

D) grace periods may be granted.

Difficulty: 2

1. Standard costing includes:

A) continuous improvement.

B) monthly cost reduction targets.

C) the assumption that workers closest to the process know best.

D) goals to meet performance standards.

Difficulty: 2

1. What is the budgeted cost of goods sold for March 2021?

A) $294,030

B) $294,000

C) $300,000

D) $297,000

Difficulty: 2

1. What is the budgeted gross margin for March 2021?

A) $196,020

B) $198,000

C) $204,020

D) $205,970

Difficulty: 1

1. ___________ can be a cost beneficial way to gather information because the company can avoid mistakes other companies have made.

A) QFD

B) TLCC

C) Benchmarking

D) Kaizen

Difficulty: 1

1. All of the following are true regarding benchmarking except:

A) that buy-in by employees is critical.

B) benchmarking can save time and money by avoiding the mistakes made by others.

C) that the purpose is to gather information regarding the best practices of others.

D) benchmarking initiatives generally result in quick changes to the work environment.

Difficulty: 1

1. ___________ is the most common method of gathering information where companies independently obtain information about one or several other companies that excel in the area of interest.

A) Cooperative benchmarking

B) Database benchmarking

C) Unilateral (covert) benchmarking

D) Indirect/third party benchmarking

Difficulty: 1

1. ___________ is where participants meet openly to discuss their methods, visit each other's sites, and generally have a long-run association.

A) Group benchmarking

B) Cooperative benchmarking

C) Unilateral (covert) benchmarking

D) Indirect/third party benchmarking

Difficulty: 2

1. As a result of the layout reorganization, reduced levels of work-in-process inventory are projected to decrease inventory carrying costs annually by:

A) $25,000.

B) $18,000.

C) $12,000.

D) $ 7,000.

Difficulty: 2

1. As a result of the layout reorganization, incremental manufacturing costs are projected to:

A) increase by $168,000 annually.

B) increase by $40,000 annually.

C) decrease by $40,000 annually.

D) decrease by $33,000 annually.

Difficulty: 3

1. As a result of switching to a cellular manufacturing operation, total benefits are projected to increase annually by:

A) $433,000

B) $400,000

C) $367,000

D) $353,000

Difficulty: 1

1. After the change, a decreased amount of work-in-process inventory is projected because:

A) of reduced cycle times resulting from a more continuous production flow.

B) of lower financing costs and the reduced need for storage and handling.

C) larger batches can be processed faster and more efficiently.

D) All of the above are correct.

Difficulty: 1

1. After the change, direct labor costs as a percentage of sales are projected to decrease because:

A) less work-in-process inventory needs to be moved from location to location.

B) fewer employees are needed to produce a product due to the new work design.

C) less supervisors are needed to oversee operations.

D) All of the above are correct.

Difficulty: 2

1. As a result of the layout reorganization, reduced levels of work-in-process inventory are projected to decrease inventory carrying costs annually by:

A) $ 2,200.

B) $ 7,500.

C) $ 8,800.

D) $11,000.

Difficulty: 2

1. As a result of the layout reorganization, incremental manufacturing costs are projected to:

A) decrease by $22,800 annually.

B) decrease by $25,000 annually.

C) increase by $25,000 annually.

D) increase by $40,000 annually.

Difficulty: 3

1. As a result of switching to a cellular manufacturing operation, total benefits are projected to increase annually by:

A) $222,800.

B) $227,200.

C) $272,800.

D) $277,200.

Difficulty: 1

1. After the change, sales are projected to increase because:

A) of shorter delivery lead times.

B) of higher sales prices.

C) of the ability to process larger batch sizes.

D) All of the above are correct.

Difficulty: 1

1. After the change, work-in-process inventory carrying costs are projected to decrease because of:

A) reduced costs in materials handling.

B) lower financing costs.

C) the decreased need for inventory storage.

D) All of the above are correct.

Difficulty: 3

1. Describe the steps in the PDCA cycle.

Difficulty: 3

1. Appleton Manufacturing, Inc., is considering reorganizing its plant into manufacturing cells. The following estimates have been prepared to evaluate the benefits from the reorganization:

Inventory carrying costs are estimated to be 12% per year.

Required:

a. Why do the layout reorganization estimates include

1. a decrease in work-in-process inventory?

2. a decrease in direct material costs as a percentage of sales?

3. an increase in sales?

b. As a result of the layout reorganization, what amount of annual change is projected

1. from carrying reduced levels of work-in-process inventory?

2. for incremental manufacturing costs?

3. in total benefits?

Difficulty: 2

1. Explain the differences between a process layout, a product layout, and cellular manufacturing.

Difficulty: 1

1. Distinguish between internal failure costs and external failure costs. Give examples of each.

Difficulty: 2

1. Why is a cost-of-quality report useful?

Difficulty: 1

1. A motorcycle manufacturer is currently using a conventional processing system. Recently work-in-process inventory has been piling up at two stations along the assembly line. To eliminate this problem, management discussed the possibility of implementing just-in-time manufacturing. Discuss the advantages and concerns of implementing JIT.

Difficulty: 1

1. In a just-in-time management system, explain:

a. why suppliers become very important to the overall manufacturing process, and

b. what incentives can be offered to reward good suppliers.

Difficulty: 1

1. Discuss cost reductions that can result from reducing work-in-process inventory.

Difficulty: 2

1. Barnard Corporation is using the Kaizen approach to budgeting for 2021. The budgeted income statement for the month ended January 31, 2021 is as follows:

Under the Kaizen approach, cost of goods sold and variable operating expenses are budgeted to decline by 2% per month.

Required:

Prepare a Kaizen-based budgeted income statement for the month ended February 28, 2021. Assume sales are constant each month.

Difficulty: 1

1. Hoppe Company is developing its budgets for 2021 and, for the first time, will use the Kaizen approach. The initial 2021 income statement, based on static data from 2020, is as follows:

Sales (140,000 units) $420,000

Less: Cost of goods sold 280,000

Gross margin 140,000

Operating expenses (includes $28,000 of depreciation) 112,000

Net income $28,000

Selling prices for 2021 are expected to increase by 8%, and sales volume in units will decrease by 10%. The cost of goods sold as estimated by the Kaizen approach will decline by 10% per unit. Other than depreciation, all other operating costs are expected to decline by 5%.

Required:

Prepare a Kaizen-based budgeted income statement for the year ended December 31, 2021.

Difficulty: 1

1. What is benchmarking and why is it used?

Difficulty: 1

1. Explain why buy-in by employees is critical to benchmarking.