Strategic Analysis – Ch13 | Complete Test Bank

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Horngren's Cost Accounting: A Managerial Emphasis, 17e, Global Edition by Datar/Rajan

Chapter 13 Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Objective 13.1

1) Which of the following statements best define strategy?

A) It describes how an organization can create value for its customers while differentiating itself from its competitors.

B) It is an organization's ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control.

C) It is an organization's ability to offer products or services its customers perceive to be superior and unique relative to the products or services of its competitors.

D) It describes how an organization motivates its employees to work for more hours without any increase in their wages.

Diff: 2

Objective: 1

AACSB: Analytical thinking

2) In general, profit potential of an organization decreases with:

A) lesser competition and stronger potential entrants

B) greater competition and stronger potential entrants

C) lesser competition and weaker potential entrants

D) greater competition and weaker potential entrants

Diff: 2

Objective: 1

AACSB: Analytical thinking

3) Which of the following statements best define a product differentiation strategy?

A) It describes how an organization can increase customer base by differentiating its' product prices from its competitors.

B) It is an organization's ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control.

C) It describes how an organization can decrease product prices by differentiating its' raw materials from its competitors.

D) It is an organization's ability to offer products or services its customers perceive to be superior and unique relative to the products or services of its competitors.

Diff: 2

Objective: 1

AACSB: Analytical thinking

4) Which of the following focuses on these five factors: competitors, potential entrants to the market, equivalent products, bargaining power of customers, and bargaining power of suppliers?

A) balanced scorecard

B) product differentiation analysis

C) industry analysis

D) business process reengineering

Diff: 2

Objective: 1

AACSB: Analytical thinking

5) What is the term that describes an organization's ability to offer products or services that are perceived by its customers as being superior and unique relative to those of its competitors?

A) strategy

B) product differentiation

C) cost leadership

D) the balanced scorecard

Diff: 1

Objective: 1

AACSB: Analytical thinking

6) What is the term for an organization's ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control?

A) marketing strategy

B) product differentiation

C) cost leadership

D) competitor differentiation

Diff: 1

Objective: 1

AACSB: Analytical thinking

7) An organization that is using the product differentiation approach would most likely do which of the following?

A) focus on tight cost control to create a reputation of saving its customers money

B) use innovative research and development and develop effective promotional campaigns to increase customer loyalty and charge higher prices

C) provide products that are similar to competitors

D) offer products at a lower cost than competitors

Diff: 2

Objective: 1

AACSB: Analytical thinking

8) An organization that is using the cost leadership approach would:

A) incur costs for innovative R&D

B) provide products at a higher cost than competitors

C) focus on productivity through efficiency improvements

D) bring products to market rapidly

Diff: 2

Objective: 1

AACSB: Analytical thinking

9) 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. Which of the following terms best describes Stewart's strategy?

A) product differentiation

B) scalability

C) product leadership

D) cost leadership

Diff: 2

Objective: 1

AACSB: Application of knowledge

10) Magic Corporation manufactures water toys. It plans to grow by producing high-quality water toys that are delivered in a timely manner. There are a number of other manufacturers who produce similar water toys. Magic believes that continuously improving its manufacturing processes and re-engineering processes to downsize and eliminate excess capacity are critical to implementing its strategy. Which of the following best describes Magic's strategy?

A) product differentiation

B) product leadership

C) cost differentiation

D) cost leadership

Diff: 2

Objective: 1

AACSB: Application of knowledge

11) Which of the following descriptions would align most closely with a company that is executing product differentiation strategy?

A) A manufacturer of a consumer product for which economies if scale are critical to its success.

B) Fast food restaurant chain that focuses on division of labor tactics to employ and train inexperienced staff.

C) A food producer that employs highly skilled and experienced chefs in its R&D function.

D) An auto repair garage that offers low-cost oil changes as a way to create traffic into its facility.

Diff: 1

Objective: 1

AACSB: Application of knowledge

12) Strategy describes how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its overall objectives.

Diff: 1

Objective: 1

AACSB: Analytical thinking

13) One of the five forces of industry analysis is understand the bargaining power of customers.

Diff: 1

Objective: 1

AACSB: Analytical thinking

14) Higher selling prices, rather than unique products or services, provide a competitive advantage for the cost leader companies.

Diff: 1

Objective: 1

AACSB: Analytical thinking

15) An organization which uses product differentiation strategy will charge higher prices.

Diff: 1

Objective: 1

AACSB: Analytical thinking

16) The cost leadership strategy is for products and services that are similar to a competitors products and services.

Diff: 1

Objective: 1

AACSB: Analytical thinking

17) The cost leadership strategy is best for a company if the engineering staff is more skilled at creatively designing new products than at making process improvements.

Diff: 2

Objective: 1

AACSB: Analytical thinking

18) Cost-leadership strategy usually focuses productivity and efficiency improvements, elimination of waste along with effective cost control systems.

Diff: 2

Objective: 1

AACSB: Analytical thinking

19) McDonalds and Walmart are examples of companies that emphasize product differentiation over cost leadership.

Diff: 2

Objective: 1

AACSB: Analytical thinking

20) Wright Corporation is reviewing its business strategy. The first step for Wright is to perform an industry analysis. You have been hired to help the company go through the strategy formulation process.

Required:

To perform the industry analysis, what areas should Wright focus on and give at least one example of how Wright can effectively deal with each area.

1. Competitors - How competitive is the industry for Wright'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: 2

Objective: 1

AACSB: Analytical thinking

21) Explain the term cost leadership. What are the possible ways through which a company would try to become a cost leader? How far is it desirable to implement cost reduction measures?

Diff: 3

Objective: 1

AACSB: Analytical thinking

Objective 13.2

1) Feedback on how a company is doing from the perspectives of financial, customer, internal business processes, and learning and growth.

A) master budget

B) poduct differentiation

C) differential report

D) balanced scorecard

Diff: 1

Objective: 2

AACSB: Analytical thinking

2) Which of the following is NOT correct about the balanced scorecard?

A) profits and value created for shareholders are perspectives revealed on a balance scorecard

B) nonfinancial and operational indicators are reported on a balance scorecard

C) the balanced scorecard reveals information about the success of the company in its target market

D) the balance scorecard increases managements emphasis on short-term results

Diff: 1

Objective: 2

AACSB: Analytical thinking

3) The first step to successful balanced scorecard implementation is clarifying the:

A) organization's vision and strategy

B) elements that pertain to value-added aspects of the business

C) owner's expectations about return on investment

D) objectives of all four balanced scorecard measurement perspectives

Diff: 1

Objective: 2

AACSB: Analytical thinking

4) In an effective balanced scorecard:

A) net income serves as the best indicator for the hard-to measure long-run operational performance

B) the sales budget serves as one of the leading indicator for the hard-to measure short-run financial performance

C) the sales budget serves as a leading indicator for the hard-to measure short-run nonfinancial performance

D) customer satisfaction serves as one of the leading indicator for the hard-to measure long-run financial performance such as the likelihood of higher sales and income

Diff: 2

Objective: 2

AACSB: Analytical thinking

5) Which of the following statements is true of a balanced scorecard?

A) The balanced scorecard reduces managers' emphasis on long-run financial performance.

B) The balanced scorecard reduces managers' emphasis on short-run financial performance.

C) The primary goal of using the balanced scorecard is to sustain short-run financial performance.

D) The primary goal of using the balanced scorecard is to sustain short-run nonfinancial performance.

Diff: 2

Objective: 2

AACSB: Analytical thinking

6) Which of the following statements is true of the internal-business-process perspective of a balanced scorecard?

A) Internal-business-process perspective is composed of three subprocesses: innovation process; learning-and-growth process; and post sales-service process.

B) Internal-business-process perspective evaluates the profitability of the strategy and the creation of shareholder value.

C) Internal-business-process improvement targets are often determined after benchmarking against an organization's main competitors standards.

D) Internal-business-process perspective is composed of three subprocesses: operations process; learning-and-growth process; and post sales-service process.

Diff: 3

Objective: 2

AACSB: Analytical thinking

7) Which of the following statements best relates to the balanced scorecard's financial perspective?

A) How can we maximize profits for the current year?

B) How can we increase shareholder value?

C) How will we achieve continuous improvements?

D) How can we maximize customer satisfaction?

Diff: 2

Objective: 2

AACSB: Analytical thinking

8) Which of the following questions best relates to the balanced scorecard's internal business processes perspective?

A) How do we streamline operations to lower costs to increase profits?

B) How do we motivate employees so that they can become more productive?

C) How can we increase our market share?

D) How can our processes be executed in such a way as to l increase value to customers?

Diff: 2

Objective: 2

AACSB: Analytical thinking

9) Which of the following statements best relates to the balanced scorecard's learning and growth perspective?

A) How will we empower our employees?

B) How do we lower costs?

C) What processes will increase value to customers?

D) How can we obtain greater profits?

Diff: 2

Objective: 2

AACSB: Analytical thinking

10) Which of the following could be a measure of the balanced scorecard's financial perspective?

A) service response time

B) number of new patents

C) operating income

D) defect rates

Diff: 2

Objective: 2

AACSB: Analytical thinking

11) Which of the following is a measure of the balanced scorecard's internal process perspective?

A) service response time

B) customer satisfaction

C) gross profit percentage

D) cost reduction

Diff: 2

Objective: 2

AACSB: Analytical thinking

12) Which of the following is a measure of the balanced scorecard's customer perspective?

A) number of client complaints

B) defect rates

C) number of process improvements

D) revenue growth

Diff: 2

Objective: 2

AACSB: Analytical thinking

13) Which of the strategic perspectives of the balanced scorecard focuses on a company's own operations that create value for customers that, in turn, help achieve financial objectives?

A) financial

B) customer

C) internal-business-process

D) learning-and-growth

Diff: 1

Objective: 2

AACSB: Analytical thinking

14) ________ is a measure of the balanced scorecard's internal-business-process perspective.

A) Market share

B) Manufacturing downtime

C) Return on investment

D) Number of customer complaints

Diff: 2

Objective: 2

AACSB: Analytical thinking

15) Which of the following statements is a benefit of measuring environmental and social performance?

A) It limits the number of performance measures, identifying only the most critical ones.

B) It helps to communicate the strategy to all members of the organization.

C) It enhances the identification of cause-and-effect relationships to evaluate benefits.

D) It uses financial measures to serve as leading indicators of future nonfinancial performance.

Diff: 2

Objective: 2

AACSB: Analytical thinking

16) A company's balanced scorecard measures yield, order-delivery time, cycle time, and errors as part of which of the following perspectives?

A) financial

B) customer

C) internal-business-process

D) learning-and-growth

Diff: 2

Objective: 2

AACSB: Application of knowledge

17) Which of the following statements is true of successfully implementing a balanced scorecard?

A) External auditors should design and implement the balanced scorecard.

B) Balanced scorecard should never be communicated to all employees.

C) Balanced scorecard should be formed exclusively by top management.

D) Management accountants should determine the balanced scorecard measures.

Diff: 2

Objective: 2

AACSB: Analytical thinking

18) Which of the following statements is a possible pitfall while implementing a balanced scorecard?

A) Managers using cost-benefit considerations while designing a balanced scorecard.

B) Managers ignoring objective measures as market share, manufacturing yield.

C) Managers using subjective measures in the balanced scorecard.

D) Top management ignoring nonfinancial measures when evaluating employee performance.

Diff: 2

Objective: 2

AACSB: Analytical thinking

19) The percentage of processes with real-time feedback would be a measure of which perspective?

A) marketing

B) customer

C) learning and growth

D) internal-business-process

Diff: 2

Objective: 2

AACSB: Application of knowledge

20) The gross margin percentage is an example of the ________ measure of a balanced-scorecard.

A) internal business process perspective

B) customer perspective

C) learning and growth perspective

D) financial perspective

Diff: 2

Objective: 2

AACSB: Application of knowledge

21) The time taken to fulfill clients' requests is an example of the ________ measure of a balanced-scorecard.

A) internal business process perspective

B) customer perspective

C) learning and growth perspective

D) financial perspective

Diff: 2

Objective: 2

AACSB: Application of knowledge

22) In a strategy map, a strategic objective where many ties spur out from it resulting in the achievement of many strategic objectives is called:

A) distinctive objectives

B) trigger point

C) focal points

D) orphan objectives

Diff: 2

Objective: 2

AACSB: Application of knowledge

23) The employee turnover rates is an example of the ________ measure of a balanced-scorecard.

A) internal business process perspective

B) customer perspective

C) learning and growth perspective

D) financial perspective

Diff: 2

Objective: 2

AACSB: Application of knowledge

24) 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. To further company strategy, measures on the balanced scorecard would most likely include:

A) number of process improvements

B) manufacturing quality

C) yield

D) an increase in operating income from productivity gains

Diff: 3

Objective: 2

AACSB: Application of knowledge

25) Terbium Corporation manufactures water toys. It plans to grow by producing high-quality water toys that are delivered in a timely manner. There are a number of other manufacturers who produce similar water toys. Terbium believes that continuously improving its manufacturing processes and reengineering processes to downsize and eliminate excess capacity are critical to implementing its strategy. To further company strategy, measures on the balanced scorecard would most likely include:

A) number of process improvements

B) price premium earned

C) longer cycle times

D) an increase in operating income from increased profit margins

Diff: 3

Objective: 2

AACSB: Application of knowledge

26) Which of the following statements is a disadvantage of balanced scorecards?

A) Balanced scorecards ignore short-run objectives.

B) Balanced scorecards may become unwieldy and difficult to understand.

C) Balanced scorecards use a lot of nonfinancial measures.

D) Balanced scorecards are of little use in influencing managerial behavior.

Diff: 2

Objective: 2

AACSB: Analytical thinking

27) What is 'strategy mapping'?

A) identifying causal links between the four perspectives of the scorecard

B) mapping the business' processes that add value

C) setting the mission of the corporation

D) flowcharting of critical decision making

Diff: 2

Objective: 2

AACSB: Analytical thinking

28) The financial perspective of the balanced scorecard focuses on the profits and value created for shareholders.

Diff: 1

Objective: 2

AACSB: Analytical thinking

29) The balanced scorecard uses financial and nonfinancial performance measures to evaluate short-run and long-run performance in a single report.

Diff: 1

Objective: 2

AACSB: Analytical thinking

30) The customer perspective of the balanced scorecard focuses on the success of the company in its target market.

Diff: 1

Objective: 2

AACSB: Analytical thinking

31) To achieve success, it is important to set nonfinancial objectives as well as financial objectives.

Diff: 1

Objective: 2

AACSB: Analytical thinking

32) An effective balanced scorecard helps to communicate the strategy to all members of the organization by translating the strategy into a coherent and linked set of understandable and measurable operational targets.

Diff: 1

Objective: 2

AACSB: Analytical thinking

33) Balanced scorecards show reveal as many measures as possible to connect objectives with measures and initiatives to help assure the success of the enterprise.

Diff: 2

Objective: 2

AACSB: Analytical thinking

34) Balanced scorecards are almost exclusively utilized in profit-seeking organizations as nonprofits cannot benefit from focusing on financial perspectives such as net income and shareholder value.

Diff: 2

Objective: 2

AACSB: Application of knowledge

35) The financial perspective of the balanced scorecard identifies targeted customers and market segments and measures the company's success in these segments.

Diff: 2

Objective: 2

AACSB: Application of knowledge

36) The customer perspective under the balanced scorecard approach would include measures on cost reduction.

Diff: 2

Objective: 2

AACSB: Application of knowledge

37) In the analysis of strategy maps, strong ties are those causal links where the impact of one strategic objective on realization of another is average when compared to the strength of the other ties in the map.

Diff: 2

Objective: 2

AACSB: Analytical thinking

38) Buck Corporation 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.

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: 3

Objective: 2

AACSB: Application of knowledge

39) Maloney Corporation manufactures plastic water bottles. It plans to grow by producing high-quality water bottles at a low cost that are delivered in a timely manner. There are a number of other manufacturers who produce similar water bottles. Maloney believes that continuously improving its manufacturing processes and having satisfied employees are critical to implementing its strategy.

Required:

a. Is Maloney'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.

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 employee satisfaction for the learning and growth perspective

Diff: 3

Objective: 2

AACSB: Application of knowledge

40) For each of the following measures, identify which perspective of the balanced scorecard it represents: financial, customer, internal-business-process, or learning-and growth.

1. service response time

2. market share

3. gross margin percentage

4. defect rates

5. customer satisfaction

6. information system availability

7. new-product development time

8. revenue growth

9. employee turnover rates

10. setup time

1. internal-business-process

2. customer

3. financial

4. internal-business-process

5. customer

6. learning-and-growth

7. internal-business-process

8. financial

9. learning-and-growth

10. internal-business-process

Diff: 3

Objective: 2

AACSB: Analytical thinking

41) Heliem Corp. uses the balanced scorecard technique to achieve its long term objectives. Managers of Heliem came to know that all the balanced scorecards objectives were achieved other than financial perspective measures for the previous period. While the learning and growth and internal business processes perspective measures were achieved with relative ease, Heliem had to strive extremely hard to achieve customer oriented measures. The company had failed miserably in achieving its financial measures. Using the given information, evaluate the strategy of Heliem and its implementation.

Diff: 2

Objective: 2

AACSB: Application of knowledge

42) What are the four key perspectives in the balanced scorecard?

a. Financial perspective - This perspective evaluates the profitability of the strategy and the creation of shareholder value.

b. Customer perspective - This perspective identifies targeted customer and market segments and measures the company's success in these segments.

c. Internal business processes perspective - This perspective focuses on internal operations that create value for customers that, in turn, help achieve financial performance. Managers determine internal-business-process improvement targets after benchmarking against the company's main competitors.

d. Learning and growth perspective - This perspective identifies the people and information capabilities necessary for an organization to learn, improve, and grow. These capabilities help achieve superior internal processes that in turn create value for customers and shareholders.

Diff: 2

Objective: 2

AACSB: Analytical thinking

43) Briefly describe what is meant by a strategy map.

Diff: 1

Objective: 2

AACSB: Analytical thinking

Objective 13.3

1) Which component of strategy measures the changes in operating income attributed solely to an increase in the quantity of output between Year 1 and Year 2?

A) the growth component

B) the price-recovery component

C) the productivity component

D) the cost leadership component

Diff: 1

Objective: 3

AACSB: Analytical thinking

2) ________ are the subdivisions of income that management accountants use for the strategic analysis of operating income.

A) Growth, price-recovery and cost leadership components

B) Growth, price-recovery and productivity components

C) Cost leadership, price-recovery and productivity components

D) Growth, cost leadership and productivity components

Diff: 2

Objective: 3

AACSB: Analytical thinking

3) Which component of strategy measures the reduction in costs attributable to a reduction in the quantity of inputs used in Year 2 relative to the quantity of inputs that would have been used in Year 1 to produce the Year 2 output?

A) the growth component

B) the price-recovery component

C) the productivity component

D) the cost leadership component

Diff: 1

Objective: 3

AACSB: Analytical thinking

4) 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 change attributed solely to an increase in market share

C) isolates the change attributed solely to an increase in industry growth

D) isolates the change attributed solely to an increase in the quantity of units sold

Diff: 1

Objective: 3

AACSB: Analytical thinking

5) 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 change in output price with the changes in input prices

C) will report a large positive amount when a company has successfully pursued the cost leadership strategy

D) isolates the change attributed solely to an increase in production efficiencies

Diff: 1

Objective: 3

AACSB: Analytical thinking

6) 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 change in output price with the changes in input prices

C) will report a large positive amount when a company has successfully pursued the cost leadership strategy

D) isolates the change attributed solely to an increase in the quantity of units sold

Diff: 1

Objective: 3

AACSB: Analytical thinking

7) Which of the following statements is true of strategic analysis of operating income?

A) Management accountants compare budgeted operating performance over two different periods.

B) Management accountants compare actual and budgeted operating performance over the same time periods.

C) Management accountants compare actual operating performance of one year and budgeted operating performance of another year.

D) Management accountants compare actual operating performance over two different periods.

Diff: 2

Objective: 3

AACSB: Analytical thinking

8) When analyzing the change in operating income, the strategy component of price-recovery will increase when:

A) capacity is reduced

B) market share is increased

C) selling prices are increased

D) more units are sold

Diff: 2

Objective: 3

AACSB: Application of knowledge

9) When analyzing the change in operating income, the strategy component of productivity will increase when:

A) capacity is reduced

B) quality is enhanced

C) selling prices are increased

D) more units are produced and sold

Diff: 2

Objective: 3

AACSB: Application of knowledge

10) Successful 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

Diff: 2

Objective: 3

AACSB: Application of knowledge

11) Successful implementation of a product differentiation strategy will result in:

A) a large favorable growth and price-recovery components

B) a large favorable price-recovery and productivity components

C) a large favorable productivity and growth components

D) only a large favorable growth component

Diff: 2

Objective: 3

AACSB: Application of knowledge

12) In 2019, Smart Office Systems Inc. (SOSI) used 25,840 pounds of plastic (direct materials) to produce 8000 units as opposed to 2020 when SOSI produced 8500 units using 27,840 pounds of plastic. The type of plastic SOSI uses cost $5 per pound in 2019 and rose to $5.25 per pound in 2020. In comparing results for these two years, what would be the cost effect of growth for the plastic material?

A) $8075 F

B) $8479 U

C) $8075 U

D) $10,000 U

Diff: 3

Objective: 3

AACSB: Analytical thinking

13) Assuming previous year's production capacity was adequate to produce current year output, the cost effect of growth for fixed costs is calculated by multiplying the difference between ________ by price per unit of capacity in the previous year.

A) actual units of capacity in current year and actual units of capacity in previous year

B) capacity units required to produce current year output in previous year and the current year capacity units

C) actual units of capacity in previous year and actual units of capacity in previous year

D) capacity units required to produce previous year output in current year and the previous year capacity units

Diff: 2

Objective: 3

AACSB: Analytical thinking

14) 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

Diff: 2

Objective: 3

AACSB: Analytical thinking

15) An operating income analysis of Fast Processing Company revealed the following:

Operating income for 2019 $1,207,000

Add growth component 102,000

Deduct price-recovery component (95,000)

Add productivity component 90,000

Operating income for 2020 $1,304,000

Fast's operating income gain is consistent with the:

A) product differentiation strategy

B) product leadership strategy

C) cost differentiation strategy

D) cost leadership strategy

Diff: 2

Objective: 3

AACSB: Application of knowledge

16) The cost effect of productivity for variable costs is calculated by multiplying the difference in actual input units used to produce current year output and units of input required to produce current year output in previous year by the:

A) price per input unit of previous year

B) price per unit of capacity in the previous year

C) price per unit of capacity in the current year

D) price per input unit of current year

Diff: 2

Objective: 3

AACSB: Analytical thinking

17) Foley Products Company makes a household appliance with model number X500. The goal for 2020 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 X500 units that can be produced. The industry market size for appliances increased 15% from 2019 to 2020. The following additional data are available for 2019 and 2020:

What is operating income for 2019?

A) $895,000

B) $1,740,000

C) $1,363,000

D) $1,272,000

Diff: 2

Objective: 3

AACSB: Application of knowledge

18) Foley Products Company makes a household appliance with model number X500. The goal for 2020 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 X500 units that can be produced. The industry market size for appliances increased 10% from 2019 to 2020. The following additional data are available for 2019 and 2020:

What is operating income for 2020?

A) $1,716,000

B) $1,127,200

C) $889,900

D) $875,200

Diff: 2

Objective: 3

AACSB: Analytical thinking

19) Which of the following statements is true of strategic analysis of operating income?

A) Change in operating income from one period to any future period can be subdivided into product differentiation, cost leadership, and growth components.

B) Subdividing the change in operating income to evaluate the success of a strategy has no similarity to the variance analysis.

C) Management accountants compare actual and budgeted operating performance over the same time periods.

D) It focuses on differences in individual categories of costs (direct materials, direct manufacturing labor, and overheads).

Diff: 2

Objective: 3

AACSB: Analytical thinking

20) Trusted Products Company makes a household appliance with model number L800. The goal for 2020 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 L800 units that can be produced. The industry market size for appliances increased 15% from 2019 to 2020. The following additional data are available for 2019 and 2020:

What is the revenue effect of the growth component?

A) $1,782,000 U

B) $418,500 F

C) $418,500 U

D) $1,782,000 F

Diff: 2

Objective: 3

AACSB: Application of knowledge

21) Trusted Products Company makes a household appliance with model number L800. The goal for 2020 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 L800 units that can be produced. The industry market size for appliances increased 10% from 2019 to 2020. The following additional data are available for 2019 and 2020:

What is the cost effect of the growth component for direct materials?

A) $291,400 U

B) $1,326,000 F

C) $1,326,000 U

D) $291,400 F

Diff: 3

Objective: 3

AACSB: Application of knowledge

22) Trusted Products Company makes a household appliance with model number L800. The goal for 2020 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 L800 units that can be produced. The industry market size for appliances increased 15% from 2019 to 2020. The following additional data are available for 2019 and 2020:

What is the cost effect of the growth component for conversion costs?

A) $1600 U

B) $0

C) $40,000 U

D) $40,000 F

Diff: 3

Objective: 3

AACSB: Application of knowledge

23) Trusted Products Company makes a household appliance with model number L800. The goal for 2020 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 L800 units that can be produced. The industry market size for appliances increased 2% from 2019 to 2020. The following additional data are available for 2019 and 2020:

Overall, was Trusted Products's strategy successful in 2020?

A) Yes, because total revenues increased

B) No, because operating income decreased

C) No, because direct materials usage per unit increased

D) No, because direct material cost per unit decreased

Diff: 3

Objective: 3

AACSB: Application of knowledge

24) Strategic Analysis of Profitability of King Philip Company:

What is the cost effect of the growth component (a)?

A) $9500 F

B) $4500 U

C) $9500 U

D) $4500 F

Diff: 2

Objective: 3

AACSB: Application of knowledge

25) Strategic Analysis of Profitability of King Philip Company:

What is the revenue effect of the productivity component (b)?

A) $0

B) $2600 U

C) $1200 F

D) $2600 F

Diff: 3

Objective: 3

AACSB: Application of knowledge

26) Strategic Analysis of Profitability of King Philip Company:

What is the cost effect of the productivity component (c)?

A) $0

B) $1400 U

C) $300 F

D) $2600 F

Diff: 3

Objective: 3

AACSB: Application of knowledge

27) Strategic Analysis of Profitability of King Philip Company:

What is the operating income amount for 2020 (d)?

A) $45,500

B) $32,500

C) $15,400

D) $9600

Diff: 3

Objective: 3

AACSB: Application of knowledge

28) Strategic Analysis of Profitability of King Philip Company:

What is the revenue amount for 2020 (e)?

A) $1200

B) $40,000

C) $50,600

D) $24,700

Diff: 3

Objective: 3

AACSB: Application of knowledge

29) Following a strategy of product differentiation, Izzy's Limited Company makes a high-end Appliance, XT15. Izzy's Limited presents the following data for the years 2019 and 2020:

Izzy's Limited produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Izzy's Limited had 135 customers in 2019 and 140 customers in 2020.

What is operating income for 2019?

A) $4,974,000

B) $7,860,000

C) $7,269,000

D) $5,203,500

Diff: 3

Objective: 3

AACSB: Application of knowledge

30) Following a strategy of product differentiation, Izzy's Limited Company makes a high-end Appliance, XT15. Izzy's Limited presents the following data for the years 2019 and 2020:

Izzy's Limited produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Izzy's Limited had 140 customers in 2019 and 145 customers in 2020.

What is operating income in 2020?

A) $7,463,500

B) $15,841,900

C) $9,212,000

D) $15,921,775

Diff: 3

Objective: 3

AACSB: Application of knowledge

31) Following a strategy of product differentiation, Izzy's Limited Company makes a high-end Appliance, XT15. Izzy's Limited presents the following data for the years 2019 and 2020:

Izzy's Limited produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Izzy's Limited had 135 customers in 2019 and 140 customers in 2020.

What is the change in operating income from 2019 to 2020?

A) $2,418,350 U

B) $3,740,000 F

C) $2,418,350 F

D) $3,740,000 U

Diff: 3

Objective: 3

AACSB: Application of knowledge

32) Following a strategy of product differentiation, Izzy's Limited Company makes a high-end Appliance, XT15. Izzy's Limited presents the following data for the years 2019 and 2020:

Izzy's Limited produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Izzy's Limited had 175 customers in 2019 and 180 customers in 2020.

What is the revenue effect of the growth component?

A) $3,780,000 F

B) $1,200,000 U

C) $3,780,000 U

D) $1,200,000 F

Diff: 2

Objective: 3

AACSB: Application of knowledge

33) Following a strategy of product differentiation, Izzy's Limited Company makes a high-end Appliance, XT15. Izzy's Limited presents the following data for the years 2019 and 2020:

Izzy's Limited produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Izzy's Limited had 160 customers in 2019 and 165 customers in 2020.

What is the cost effect of the growth component? (Round any intermediary calculations to two decimals and your final answer to the nearest dollar.)

A) $280,500 U

B) $1,449,700 U

C) $1,449,700 F

D) $280,500 F

Diff: 3

Objective: 3

AACSB: Application of knowledge

34) Following a strategy of product differentiation, Izzy's Limited Company makes a high-end Appliance, XT15. Izzy's Limited presents the following data for the years 2019 and 2020:

Izzy's Limited produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Izzy's Limited had 165 customers in 2019 and 170 customers in 2020.

What is the net effect on operating income as a result of the growth component? (Round any intermediary calculations to two decimals and your final answer to the nearest dollar.)

A) $2,977,094 F

B) $473,600 F

C) $473,600 U

D) $2,977,094 U

Diff: 3

Objective: 3

AACSB: Application of knowledge

35) Following a strategy of product differentiation, Izzy's Limited Company makes a high-end Appliance, XT15. Izzy's Limited presents the following data for the years 2019 and 2020:

Izzy's Limited produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Izzy's Limited had 180 customers in 2019 and 185 customers in 2020.

What is the revenue effect of the price-recovery component?

A) $3,132,000 U

B) $1,320,000 U

C) $1,320,000 F

D) $3,132,000 F

Diff: 2

Objective: 3

AACSB: Application of knowledge

36) Following a strategy of product differentiation, Izzy's Limited Company makes a high-end Appliance, XT15. Izzy's Limited presents the following data for the years 2019 and 2020:

Izzy's Limited produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Izzy's Limited had 155 customers in 2019 and 160 customers in 2020.

What is the cost effect of the price-recovery component? (Round any intermediary calculations to two decimals and your final answer to the nearest dollar.)

A) $365,580 F

B) $365,580 U

C) $1,845,740 U

D) $1,845,740 F

Diff: 3

Objective: 3

AACSB: Application of knowledge

37) Following a strategy of product differentiation, Izzy's Limited Company makes a high-end Appliance, XT15. Izzy's Limited presents the following data for the years 2019 and 2020:

Izzy's Limited produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Izzy's Limited had 160 customers in 2019 and 165 customers in 2020.

What is the net effect on operating income as a result of the price-recovery component? (Round any intermediary calculations to two decimals and your final answer to the nearest dollar.)

A) $1,292,700 F

B) $1,545,000 U

C) $1,292,700 U

D) $1,545,000 F

Diff: 3

Objective: 3

AACSB: Application of knowledge

38) Following a strategy of product differentiation, Izzy's Limited Company makes a high-end Appliance, XT15. Izzy's Limited presents the following data for the years 2019 and 2020:

Izzy's Limited produces no defective units but it wants to reduce direct materials usage per unit of XT15. Manufacturing conversion costs in each year depend on production capacity defined in terms of XT15 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. Izzy's Limited had 145 customers in 2019 and 150 customers in 2020.

What is the net effect on operating income as a result of the productivity component? (Round any intermediary calculations to two decimals and your final answer to the nearest dollar.)

A) $1,664,016 U

B) $124,672 F

C) $1,664,016 F

D) $124,672 U

Diff: 3

Objective: 3

AACSB: Application of knowledge

39) Smart Office Systems Inc, (SOSI) a manufacturer of office equipment, in 2020, one of its best years, SOSI sold 1,000,000 units of its YAZ1 calculator for $20 each. In 2019, it sold 930,000 of that same unit for $17.75 each. The cost of the calculator was $16 and $15.00 for 2020 and 2019 respectively. Using the data from 2020 and 2019, what was SOSI's revenue effect of growth?

A) $1,242,500 U

B) $192,500 F

C) $1,242,500 F

D) $280,000 U

Diff: 3

Objective: 3

AACSB: Application of knowledge

40) Cobalt Company makes a household appliance with model number X500. The goal for 2020 is to improve product design and outlook. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of X500 units that can be produced. The industry market size for appliances increased 10% from 2019 to 2020. The following additional data are available for 2019 and 2020:

2019 2020

Units of X500 produced and sold 20,000 20,000

Selling price $150 $170

Direct materials (square feet) 30,000 32,500

Direct material costs per square foot $10 $10

Manufacturing capacity for X500 (units) 20,500 20,500

Total conversion costs $451,000 $493,250

Conversion costs per unit of capacity $22 $22.5

Out of the two basic strategies, Cobalt's strategy is:

A) product differentiation because Cobalt is able to produce a given quantity of output with a lower cost of inputs

B) cost leadership because Cobalt is able to produce a given quantity of output with a lower cost of inputs

C) cost leadership because Cobalt is able to increase its output price faster than the increase in its input prices

D) product differentiation because Cobalt is able to increase its output price faster than the increase in its input prices

Diff: 2

Objective: 3

AACSB: Application of knowledge

41) Jackson Corporation produced 1,000 units of a product in 2020 that required 25,000 pounds of material. The price for the material was $3.00 per pound in 2020 and $3.25 in 2019. Jackson's cost accountant has estimated that to produce the same 1,000 units in 2019 would have required 29,700 pounds of material. What was the cost effect of productivity for materials?

A) $15,275 F

B) $14,100 F

C) $14,100 U

D) $15,275 U

Diff: 3

Objective: 3

AACSB: Analytical thinking

42) The price-recovery component of the change in operating income measures solely the effect of price changes on revenues but not costs.

Diff: 1

Objective: 3

AACSB: Analytical thinking

43) When analyzing the change in operating income, the strategy component of growth will increase when more units are sold.

Diff: 2

Objective: 3

AACSB: Application of knowledge

44) The revenue effect of growth is calculated by multiplying the difference in units sold (current year minus the previous year) by selling price in the current year.

Diff: 2

Objective: 3

AACSB: Analytical thinking

45) Cost effect of productivity for fixed costs is calculated by multiplying the difference in units of capacity (current year capacity units minus the previous year capacity units) by price per unit of capacity of the previous year.

Diff: 2

Objective: 3

AACSB: Analytical thinking

46) The productivity component measures the amount by which operating income increases by using inputs efficiently to lower costs.

Diff: 1

Objective: 3

AACSB: Application of knowledge

47) An increase in production capacity will always result in a favorable cost effect of productivity for variable costs in the short run.

Diff: 2

Objective: 3

AACSB: Application of knowledge

48) An analysis of Revere Beach Corporation's operating income changes between 2019 and 2020 show the following:

Operating income for 2019 $4,750,000

Add growth component 180,000

Deduct price-recovery component (60,000)

Add productivity component 285,000

Operating income for 2020 $5,155,000

Required:

Is Revere's operating income gain consistent with the product differentiation or cost leadership strategy? Explain briefly.

Diff: 3

Objective: 3

AACSB: Application of knowledge

49) An analysis of Terbolt Corporation's operating income changes between 2019 and 2020 show the following:

Operating income for 2019 $4,750,000

Add growth component 75,000

Add price-recovery component 398,000

Deduct productivity component (50,000)

Operating income for 2020 $5,173,000

Required:

Is Terbolt's operating income gain consistent with the product differentiation or cost leadership strategy? Explain briefly.

Diff: 3

Objective: 3

AACSB: Application of knowledge

50) Following a strategy of product differentiation, Somerset Corporation makes a high-end computer monitor, CM7. Somerset Corporation presents the following data for the years 2019 and 2020:

2019 2020

Units of CM 7 produced and sold 5,000 6,500

Selling price $400 $440

Direct materials (pounds) 16,000 16,375

Direct materials costs per pound $40 $44

Manufacturing capacity for CM7 (units) 10,000 10,000

Conversion costs $1,000,000 $1,100,000

Conversion costs per unit of capacity $100 $110

Selling and customer-service capacity (customers) 60 58

Total selling and customer-service costs $360,000 $362,500

Selling and customer-service capacity cost per customer $6,000 $6,250

Somerset Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2020. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 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. Somerset Corporation has 100 customers in 2019 and 115 customers in 2020. The industry market size for high-end computer monitors increased 5% from 2017 to 2020.

Required:

a. What is operating income for 2019?

b. What is operating income in 2020?

c. What is the change in operating income from 2019 to 2020?

a. ($400 × 6,000) - [($40 × 16,000) + ($100 × 10,000) + ($6,000 × 60)] = $400,000

b. ($440 × 6,500) - [($44 × 16,375) + ($110 × 10,000) + ($6,250 × 58)] = $677,500

c. $400,000 - $677,500 = $277,500 F

Diff: 3

Objective: 3

AACSB: Application of knowledge

51) Following a strategy of product differentiation, Americonic Corporation makes a high-end computer monitor. Americonic Corporation presents the following data for the years 2019 and 2020:

2019 2020

Units produced and sold 6,000 6,500

Selling price $420 $440

Direct materials (pounds) 16,000 16,375

Direct materials costs per pound $40 $44

Manufacturing capacity (units) 10,000 10,000

Conversion costs $1,000,000 $1,100,000

Conversion costs per unit of capacity $100 $110

Selling and customer-service capacity (customers) 60 58

Total selling and customer-service costs $360,000 $362,500

Selling and customer-service capacity cost per customer $6,000 $6,250

Somerset Corporation produces no defective units but it wants to reduce direct materials usage per unit in 2020. Manufacturing conversion costs in each year depend on production capacity defined in terms of 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. Ernsting Corporation has 100 customers in 2019 and 115 customers in 2020. The industry market size for high-end computer monitors increased 5% from 2019 to 2020.

Required:

a. What is the revenue effect of the growth component?

b. What is the cost effect of the growth component?

c. What is the net effect on operating income as a result of the growth component?

a. (6,500 - 6,000) × $420 = $210,000 F

b. 16,000 × 6,500 / 6,000 = 17,333; [(17,333 - 16,000) × $40] + [(10,000 - 10,000) × $100] + [(60 - 60) × $6,000] = $53,320 U

c. $210,000 F + $53,320 U = $156,680 F

Diff: 3

Objective: 3

AACSB: Application of knowledge

52) Following a strategy of product differentiation, Somerset Corporation makes a high-end computer monitor, CM7. Somerset Corporation presents the following data for the years 2019 and 2020:

2019 2020

Units of CM7 produced and sold 5,000 5,500

Selling price $400 $440

Direct materials (pounds) 15,000 15,375

Direct materials costs per pound $40 $44

Manufacturing capacity for CM12 (units) 10,000 10,000

Conversion costs $1,000,000 $1,100,000

Conversion costs per unit of capacity $100 $110

Selling and customer-service capacity (customers) 60 58

Total selling and customer-service costs $360,000 $362,500

Selling and customer-service capacity cost per customer $6,000 $6,250

Somerset Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2019. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 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. Ernsting Corporation has 100 customers in 2019 and 115 customers in 2020. The industry market size for high-end computer monitors increased 5% from 2019 to 2020.

Required:

a. What is the revenue effect of the price-recovery component?

b. What is the cost effect of the price-recovery component?

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?

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

Objective: 3

AACSB: Application of knowledge

53) A company pursuing cost leadership may try to further analyze the change in operating income even when the growth component is highly favorable. Why?

Diff: 2

Objective: 3

AACSB: Analytical thinking

Objective 13.4

1) Engineered costs:

A) have a no repetitive relationship with output

B) have no measurable cause-and-effect relationship between output and resources used

C) include research and development and human resource costs

D) include a high level of certainty

Diff: 1

Objective: 4

AACSB: Analytical thinking

2) Which of the following statements is of true engineered costs?

A) They arise from periodic (usually annual) decisions regarding the maximum amount to be incurred.

B) They have a detailed, physically observable, and repetitive relationship with output.

C) They include advertising, executive training, and R&D.

D) They have high level of uncertainty.

Diff: 1

Objective: 4

AACSB: Analytical thinking

3) Which of the following statements is true of discretionary costs?

A) They arise from day-to-day operational decisions.

B) They include conversion cost, direct material costs.

C) They have measurable cause-and-effect relationship between output and resources used.

D) They have high level of uncertainty.

Diff: 1

Objective: 4

AACSB: Analytical thinking

4) Which of the following is NOT a discretionary cost?

A) the cost of social networking activities to promote a product

B) the cost of total quality management training for executives

C) legal costs

D) the cost to train factory general managers to use a new activity based management system

Diff: 2

Objective: 4

AACSB: Analytical thinking

5) Which of the following is NOT an engineered cost?

A) direct material cost of a major component of the product

B) advertising costs for a new product that the factory will start producing

C) the cost of direct laborers who work in the factory

D) depreciation of all factory tools

Diff: 2

Objective: 4

AACSB: Application of knowledge

6) Engineered costs:

A) possess a high level of uncertainty but are significant costs when they are incurred

B) are non repetitive but are physically observable

C) are from physically observable activities and have a repetitive relationship with output

D) are embedded in the manufacturing process but have no measurable cause-and-effect relationship between output and resources used

Diff: 2

Objective: 4

AACSB: Analytical thinking

7) Conversion costs are an example of:

A) direct engineered costs

B) indirect engineered costs

C) discretionary costs

D) unused capacity costs

Diff: 2

Objective: 4

AACSB: Application of knowledge

8) Managers can reduce capacity-based fixed costs by measuring and managing:

A) unused capacity

B) variable costs

C) engineered costs

D) discretionary costs

Diff: 1

Objective: 4

AACSB: Analytical thinking

9) In 2020, Commodity Inc., processor of whole grain flour, had the capacity to produce 10,000,000 pounds of product at a conversion cost per pound of $0.20. The conversion cost per pound was $0.15 in 2019 (the previous year). The direct material cost per pound for both years was $0.07 per pound and in 2020, Commodity Inc. produced 9,300,000 pounds while actual production for the previous year was 8,600,000 pounds. What was the cost of unused capacity in 2020?

A) $280,000

B) $140,000

C) $105,000

D) $210,000

Diff: 2

Objective: 4

AACSB: Analytical thinking

10) BarGraphs Corp. had capacity to produce 12,000 units of L3 using 30,000 kg of direct materials. BarGraphs produced 11,650 units of L3 by processing 25,500 kg of direct materials. Conversion cost per unit is $7.50. BarGraphs can add or reduce manufacturing capacity in increments of 4500 kgs.

What is the cost of unused capacity for conversion costs of BarGraphs?

A) $3000

B) $4500

C) $13,500

D) $2625

Diff: 2

Objective: 4

AACSB: Application of knowledge

11) BarGraphs Corp. had capacity to produce 4000 units of L3 using 40,000 kg of direct materials. BarGraphs produced 3850 units of L3 by processing 35,500 kg of direct materials. Conversion cost per unit is $7.00. BarGraphs can add or reduce manufacturing capacity in increments of 4500 kgs.

What would be the cost savings if BarGraphs decides to reduce manufacturing capacity by 4500 kgs?

A) $3150

B) $700

C) $1050

D) $4500

Diff: 2

Objective: 4

AACSB: Application of knowledge

12) Which of the following statements is a valid argument for BarGraphs to reduce its manufacturing capacity?

A) BarGraphs's strategy is to grow its business as L3 have unlimited demand.

B) BarGraphs can call back the expelled employees if the reduced capacity level proves to be insufficient.

C) BarGraphs already has a high employee turnover rate and a few more will make no difference.

D) BarGraphs wants to reduce product costs as they want to be the cost leaders.

Diff: 3

Objective: 4

AACSB: Analytical thinking

13) Direct material cost is an example of:

A) conversion costs

B) discretionary costs

C) engineered costs

D) downsized costs

Diff: 2

Objective: 4

AACSB: Analytical thinking

14) The amount of productive capacity available over and above the productive capacity employed to meet customer demand in the current period is the unused capacity.

Diff: 2

Objective: 4

AACSB: Analytical thinking

15) Discretionary costs arise from periodic (usually annual) decisions and have a measurable cause-and-effect relationship between output and resources used.

Diff: 1

Objective: 4

AACSB: Analytical thinking

16) Discretionary costs are not easily controllable compared to engineered costs.

Diff: 1

Objective: 4

AACSB: Analytical thinking

17) Engineered costs contain a higher level of uncertainty than discretionary costs.

Diff: 2

Objective: 4

AACSB: Analytical thinking

18) Engineered costs result from a cause-and-effect relationship between the cost driver output and the resources used to produce that output.

Diff: 1

Objective: 4

AACSB: Analytical thinking

19) Advertising cost is an example of a discretionary cost.

Diff: 2

Objective: 4

AACSB: Analytical thinking

20) It is relatively easy to identify unused capacity for discretionary costs.

Diff: 2

Objective: 4

AACSB: Analytical thinking

21) Downsizing is an integrated approach of configuring processes, products, and people to match costs to the activities that need to be performed to operate effectively and efficiently in the present and future.

Diff: 1

Objective: 4

AACSB: Analytical thinking

22) Manufacturing overhead cost is an example of indirect engineered costs.

Diff: 2

Objective: 4

AACSB: Analytical thinking

23) Identifying unused capacity for R&D costs is relatively easy once the impact of downsizing is estimated for engineered costs.

Diff: 2

Objective: 4

AACSB: Analytical thinking

24) Define engineered and discretionary costs and give two examples of each.

Diff: 2

Objective: 4

AACSB: Analytical thinking

25) Can a company identify unused capacity and, if so, how can unused capacity be managed?

Diff: 2

Objective: 4

AACSB: Analytical thinking

Objective 13.A

1) 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) overallocation

B) expenditure

C) productivity

D) labor costs

Diff: 1

Objective: A1

AACSB: Analytical thinking

2) Excellent Mugs Inc. produced 1,200,000 units in 2020 at a units of output per dollar of input cost was $0.10. Its cost of input at 2020 prices that would have been used in 2019 was $13,333,333. How much did the total factor productivity (TFP) increase as a result of 2020 operations?

A) about 10.0%

B) about 11.1%

C) about 9%

D) about 19%

Diff: 3

Objective: A1

AACSB: Analytical thinking

3) Partial productivity multiplied by the quantity of input used results in:

A) expected production

B) budgeted output

C) actual output

D) a ratio

Diff: 1

Objective: A1

AACSB: Analytical thinking

4) ________ measures the relationship between actual inputs used and actual outputs achieved.

A) Strategy map

B) Planning variance

C) Productivity

D) Discretionary costs

Diff: 1

Objective: A1

AACSB: Analytical thinking

5) Which of the following is the correct mathematical expression to calculate partial productivity?

A) Sales value of output produced ÷ Quantity of all inputs used

B) Quantity of output produced ÷ Quantity of input used

C) Quantity of output produced ÷ Costs of all inputs used

D) Sales value of output produced ÷ Cost of inputs required to produce current year production in previous year

Diff: 2

Objective: A1

AACSB: Analytical thinking

6) Kellogg Parts Company provided the following information:

What is the partial productivity ratio?

A) 1.03 units per gallon

B) 1.02 units per gallon

C) 0.98 units per gallon

D) 0.96 units per gallon

Diff: 2

Objective: A1

AACSB: Application of knowledge

7) Autocratic Company provided the following information:

What is the partial productivity ratio?

A) 2.01 units per gallon

B) 0.5 units per gallon

C) 0.52 units per gallon

D) 1.93 units per gallon

Diff: 2

Objective: A1

AACSB: Application of knowledge

8) Advanced Productivity Company provided the following information:

What is the partial productivity ratio?

A) 0.34 units per gallon

B) 0.42 units per gallon

C) 0.35 units per gallon

D) 0.43 units per gallon

Diff: 2

Objective: A1

AACSB: Application of knowledge

9) Which of the following statements is true of productivity?

A) Partial productivity compares the quantity of output produced with the cost of all inputs used.

B) Productivity will increase when the partial productivity is high.

C) Prices of inputs are incorporated in the partial productivity ratio.

D) Partial productivity compares the quantity of output produced with the quantity of all inputs used.

Diff: 2

Objective: A1

AACSB: Application of knowledge

10) Davis Company produced 216,000 sport jackets during 2015 and 540,000 direct manufacturing labor-hours were used at $2 per hour. The conversion costs were $1.20 per jackets produced.

What is the direct manufacturing labor partial productivity for Davis Company?

A) 0.40 unit per direct manufacturing labor-hour

B) 0.60 unit per direct manufacturing labor-hour

C) 2.50 unit per direct manufacturing labor-hour

D) 1.00 unit per direct manufacturing labor-hour

Diff: 2

Objective: A1

AACSB: Application of knowledge

11) Davis Company produced 159,000 sport jackets during 2015 and 530,000 direct manufacturing labor-hours were used at $3 per hour. The conversion costs were $1.20 per jackets produced.

What is the total factor productivity for Davis Company?

A) 0.089 units of output per dollar

B) 0.300 units of output per dollar

C) 0.298 units of output per dollar

D) 2.500 units of output per dollar

Diff: 3

Objective: A1

AACSB: Application of knowledge

12) Which of the following statements is true of productivity factors?

A) Partial-productivity focus on a multiple inputs simultaneously.

B) Total factor productivity (TFP) focus on a single input.

C) It is the ratio of the quantity of output produced to the costs of all inputs used based on current prices.

D) Comparable data for total factor productivity measurements are easily available.

Diff: 2

Objective: A1

AACSB: Analytical thinking

13) Total factor productivity will increase if:

A) technical productivity occurs

B) the company uses more total inputs per output

C) the company incurs fewer costs per input

D) current technology becomes obsolete

Diff: 2

Objective: A1

AACSB: Application of knowledge

14) Which of the following is the correct mathematical expression to calculate total factor productivity?

A) Sales value of output produced ÷ Quantity of all inputs used

B) Quantity of output produced ÷ Quantity of the input used

C) Quantity of output produced ÷ Costs of all inputs used

D) Sales value of output produced ÷ Cost of inputs required to produce current year production in previous year

Diff: 2

Objective: A1

AACSB: Analytical thinking

15) Which of the following is the correct mathematical expression to calculate a benchmark total factor productivity?

A) Quantity of output produced in current year ÷ Costs of inputs at current year prices that would have been used in previous year to produce current year output

B) Quantity of output produced in previous year ÷ Costs of inputs at current year prices that would have been used in previous year to produce current year output

C) Quantity of output produced in current year ÷ Costs of inputs at previous year prices that would have been used in previous year to produce current year output

D) Quantity of output produced in previous year ÷ Costs of inputs at previous year prices that would have been used in previous year to produce current year output

Diff: 2

Objective: A1

AACSB: Analytical thinking

16) 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

Diff: 3

Objective: A1

AACSB: Application of knowledge

17) Which of the following statements is true of productivity measures?

A) Partial productivity and total factor productivity measures never work best together.

B) Partial productivity explicitly considers gains from using fewer physical inputs as well as substitution among inputs.

C) All productivity measures are physical measures lacking financial content.

D) Total factor productivity considers the trade-offs across various inputs based on current input prices.

Diff: 2

Objective: A1

AACSB: Analytical thinking

18) ________ is an example of a total factor productivity measure.

A) The number of units produced per month

B) The number of units produced per machine hour

C) The number of units produced per labor hour

D) The number of units produced per dollar of input cost

Diff: 2

Objective: A1

AACSB: Application of knowledge

19) Partial productivity and TFP measures work best together because the strengths of one offset the weaknesses of the other.

Diff: 2

Objective: A1

AACSB: Analytical thinking

20) Partial productivity and total factor productivity measures work best together because both measures have the same kind of strengths and weaknesses.

Diff: 2

Objective: A1

AACSB: Analytical thinking

21) One advantage of the total factor productivity is that operations managers can use it to easily understand specific labor productivity issues.

Diff: 2

Objective: A1

AACSB: Analytical thinking

22) Productivity describes the relationship between different quantities of inputs consumed and the quantities of output produced.

Diff: 1

Objective: A1

AACSB: Analytical thinking

23) Power Company has been unhappy with the financial accounting variances that its cost accounting 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:

2019 2020

Remote control units produced and sold 80,000 100,000

Direct manufacture labor-hours 12,000 13,200

Direct materials used (sets) 80,600 100,500

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 2019 and 2020? Explain.

d. What will be the projected direct material and labor needs for 2021 if remote control units increase by 12,000 units, assuming Power Company applies the constant returns to scale technology?

a. 2019 Partial productivity of direct materials = 80,000/80,600 = 0.993

2020 Partial productivity of direct materials = 100,000/100,500 = 0.995

b. 2019 Partial productivity direct manufacturing labor = 80,000/12,000 = 6.67

2020 Partial productivity direct manufacturing labor = 100,000/13,200 = 7.58

c. Yes, both areas showed improvement because the ratios went up.

d. Production increase = 12,000/100,000 = 12 percent

Projected direct material sets = 100,500 × 1.12 = 112,560 sets

Projected direct manufacturing labor = 13,200 × 1.12 = 14,784 hours

Diff: 3

Objective: A1

AACSB: Application of knowledge

24) Grader Company manufactures road graders. Because its managers all have engineering backgrounds, they prefer nonfinancial 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:

2019 2020

Units produced and sold 6,800 5,600

Direct manufacture labor-hours 136,000 115,200

Direct materials used (tons) 29,000 24,400

Direct manufacture cost per hour $21 $22

Direct materials cost per ton $431 $443

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?

a. 2019 Partial productivity of direct materials = 6,800/29,000 = 0.234

2020 Partial productivity of direct materials = 5,600/24,400 = 0.230

b. 2019 Partial productivity for direct manufacturing labor = 6,800/136,000 = 0.050

2020 Partial productivity for direct manufacturing labor =5,600/115,200 = 0.049

c. 2019 Direct materials = 29,000 × $431 = $12,499,000

Direct manufacturing labor = 136,000 × $21 = 2,856,000

Total $15,355,000

2020 Direct materials = 24,400 × $443 = $10,809,200

Direct mfg. labor = 115,200 × $22 = 2,534,400

Total $13,343,600

2019 Total factor productivity = 6,800/$15,355,000 = 0.00044

2020 Total factor productivity = 5,600/$13,343,600 = 0.00042

Diff: 3

Objective: A1

AACSB: Application of knowledge

25) Fairytale Weddings manufactures wedding dresses. The following information relates to the manufacture of gowns in its Providence plant:

2019 2020

Units produced and sold 43,000 52,600

Direct manufacture labor-hours 22,000 26,000

Direct materials used (square yards) 130,000 152,000

Direct manufacture cost per hour $16 $17

Direct materials cost per yard $10 $11

Required:

Prepare an analysis of change in annual costs from 2019 to 2020 including direct materials, direct manufacturing labor, and total inputs.

Actual 2019 costs: 130,000 × $10 = $1,300,000

2019 input for 2020 output: 130,000 × 52,600/43,000 × $10 = 1,590,233

Output adjustment $ 290,233 U

2019 input for 2020 output: = $1,590,233

2019 input with 2020 costs: 130,000 × 52,600/43,000 × $11 = 1,749,256

Input price change $ 159,023 U

2019 input with 2020 costs: = $1,749,256

2020 costs: 152,000 × $11 = 1,672,000

Productivity change $ 77,256 F

Direct manufacturing labor:

Actual 2019 costs: 22,000 × $16 = $352,000

2019 input for 2020 output: 22,000 × 52,600/43,000 × $16 = 430,586

Output adjustment $ 78,586 U

2019 input for 2020 output: = $430,586

2019 input with 2020 costs: 22,000 × 52,600/43,000 × $17 = 457,498

Input price change $ 26,912 U

2019 input with 2020 costs: = $457,498

2020 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

Objective: A1

AACSB: Application of knowledge

26) Ralph Company has been very aggressive in developing 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?

Diff: 2

Objective: A1

AACSB: Application of knowledge

27) 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?

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

Objective: A1

AACSB: Analytical thinking