Question 1

____ is concerned with doing the activity right the first time it is performed.
A) Time
B) Efficiency
C) Quality
D) Velocity
E) None of these.

Accepted Answer

Quality refers to the degree to which a product or service meets customer expectations. Doing the activity right the first time is one of the key aspects of quality. Time and velocity are concerned with speed, while efficiency is concerned with achieving a goal with the least amount of resources. None of these options specifically address the importance of doing an activity right the first time.

Question 2

Environmental costs which the firm is not financially responsible are called ____ costs.
A) prevention
B) detection
C) external
D) appraisal
E) societal

Accepted Answer

The answer of Environmental costs which the firm is not...

Question 3

Assume that a company takes 3,500 hours to produce 10,000 units of a product. What is the cycle time?
A) 0.45 hour
B) 1 hour
C) 0.5 hour
D) 3 hours
E) 0.35 hour

Accepted Answer

Cycle time is calculated by dividing the total production time by the number of units produced. Here, 3,500 hours divided by 10,000 units equals 0.35 hours per unit.

Question 4

Scrap and retesting are examples of ____ failure costs.
A) detection
B) external
C) internal
D) appraisal
E) prevention

Accepted Answer

Scrap and retesting are examples of internal failure costs, which are costs incurred by defects found before the product is delivered to the customer.

Question 5

Inspection time for a plant is 10,000 hours per year. The cost of inspection consists of salaries of four inspectors, totaling $60,000. Inspection also used supplies costing $3 per inspection hour. The company has a close to zero defect state and has eliminated the need for any inspection activity. Calculate the nonvalue-added cost of inspection per year.
A) $30,000
B) $60,000
C) $90,000
D) $120,000

Accepted Answer

The non-value added cost of inspection is calculated as follows:

Non-value added cost = (total inspection hours) x (cost per inspection hour)
Total inspection hours = 10,000 hours per year
Cost per inspection hour = Salaries of inspectors + Supplies cost
                     = $60,000 + ($3 x 10,000)
                     = $60,000 + $30,000
                     = $90,000

Therefore, the non-value added cost of inspection per year is $90,000.

Question 6

____ activities are performed in response to poor quality.
A) Failure
B) Environmental
C) Value-added
D) Control
E) Prevention

Accepted Answer

Failure activities are performed in response to poor quality, as they involve addressing defects and issues that arise when products or services do not meet quality standards.

Question 7

____ focuses on the relationship of activity inputs to activity outputs.
A) Activity output measure
B) Efficiency
C) Velocity
D) Activity drivers
E) None of these.

Accepted Answer

Efficiency focuses on the relationship of activity inputs (what you put into a process) to activity outputs (what you get out of it), essentially measuring how well resources are being used to produce outcomes.

Question 8

Packaging inspection and process acceptance are examples of ____.
A) external failure costs
B) prevention costs
C) internal failure costs
D) value costs
E) appraisal costs

Accepted Answer

Packaging inspection and process acceptance involve conducting appraisals to ensure that products and processes meet quality standards. Appraisal costs are incurred to identify defects and non-conformance so that corrective actions can be taken, preventing internal and external failures.

Question 9

Using the original design, a machine requires 12 hours of setup time. By redesigning the machine, the setup time is reduced by 25%. The cost per setup hour is $225. Calculate the reduction in nonvalue-added cost per setup.
A) $675 per setup
B) $225 per setup
C) $450 per setup
D) $800 per setup
E) $2,025

Accepted Answer

The reduction in setup time is 25% of 12 hours, which equals 3 hours. At a cost of $225 per setup hour, the reduction in nonvalue-added cost per setup is 3 hours * $225/hour = $675.

Question 10

Complying with the filing requirements of the IRS is an example of a
A) recreational activity.
B) discretionary activity.
C) recommended activity.
D) required activity.

Accepted Answer

Filing requirements of the IRS are mandatory and must be done by law. It is not a recreational or discretionary activity, although it may be recommended to stay compliant with tax laws.

Question 11

All of the following are supplier-driven activities except
A) receiving.
B) purchasing.
C) efficiency.
D) inspection of incoming components.

Accepted Answer

Receiving, purchasing, and inspection of incoming components are all activities that are driven by the supplier, as they are responsible for delivering the components to the purchasing company. Efficiency, however, is an activity that is driven by the purchasing company itself in order to ensure that the supplier's components are being used effectively and efficiently.

Question 12

A company takes 8,000 hours to produce 24,000 units of a product. What is the velocity?
A) 1 units per hour
B) 3.5 units per hour
C) 2 units per hour
D) 3 unit per hour
E) 2.5 units per hour

Accepted Answer

Velocity is calculated by dividing the total number of units produced by the total hours taken. Here, 24,000 units divided by 8,000 hours equals 3 units per hour.

Question 13

A product currently requires 5 moves. By changing the plant layout, the number of moves can be reduced to 1. The cost per move is $30. Calculate the reduction in nonvalue-added cost of the moving activity.
A) $7.50
B) $30
C) $0
D) $120
E) $150

Accepted Answer

Before the change in plant layout, the nonvalue-added cost of the moving activity was:
5 moves * $30/move = $150

After the change in plant layout, the nonvalue-added cost of the moving activity is:
1 move * $30/move = $30

Therefore, the reduction in nonvalue-added cost of the moving activity is:
$150 - $30 = $120

So, the answer is D, $120.

Question 14

Which of the following is not an example of a nonvalue-added activity?
A) inspecting
B) scheduling
C) moving
D) waiting
E) supervising

Accepted Answer

Supervising is considered a value-added activity because it involves managing and overseeing operations to ensure that work is performed efficiently and effectively, contributing to the quality and value of the final product or service. In contrast, inspecting, scheduling, moving, and waiting are typically seen as nonvalue-added activities because they do not directly add value to the product or service and often represent inefficiencies that businesses strive to minimize.

Question 15

Field trials and quality engineering are examples of ____.
A) prevention costs
B) appraisal costs
C) failure costs
D) quality costs
E) value costs

Accepted Answer

The answer of Field trials and quality engineering are examples...

Question 16

A company spends $12,000 a year for inspecting, $41,000 for purchasing, and $22,000 for reworking products. A good estimate of nonvalue-added costs would be:
A) $22,000
B) $34,000
C) $41,000
D) $33,000
E) $55,000

Accepted Answer

Nonvalue-added costs refer to expenses in the manufacturing process that do not add value to the final product or service. Inspecting and reworking costs can be considered nonvalue-added costs, while purchasing is necessary to acquire raw materials and add value to the final product. Therefore, the nonvalue-added costs in this scenario would be $12,000 + $22,000 = $34,000, making option B the best choice.

Question 17

Which is not a component of process value analysis?
A) driver analysis
B) velocity
C) activity analysis
D) performance measurement
E) None of these.

Accepted Answer

Driver analysis, activity analysis, and performance measurement are all components of process value analysis. Velocity is not a component of process value analysis.

Question 18

Activity-based management attempts to
A) identify and eliminate all unnecessary activities.
B) increase the efficiency of necessary activities.
C) add new activities that increase value.
D) do all of these.

Accepted Answer

Activity-based management aims to identify and eliminate unnecessary activities, increase the efficiency of necessary activities, and add new activities that add value. Therefore, the correct answer is option D, which is 'do all of these.'

Question 19

A manual process takes 18 minutes of direct labor time and 6 pounds of material to produce a product. Automating the process requires 12 minutes of machine time and 5 pounds of material. The cost per labor hour is $9, the cost per machine hour is $7, and the cost per pound of materials is $11. Find the nonvalue-added cost for the above situation.
A) $2.40 per unit
B) $9.00 per unit
C) $12.30 per unit
D) $1.70 per unit

Accepted Answer

Firstly, we need to calculate the direct cost of both manual and automated processes.

Manual process cost:
Direct labor cost = 18 minutes/60 minutes * $9 = $2.70
Material cost = 6 pounds * $11 = $66
Total direct cost = $2.70 + $66 = $68.70

Automated process cost:
Machine cost = 12 minutes/60 minutes * $7 = $1.40
Material cost = 5 pounds * $11 = $55
Total direct cost = $1.40 + $55 = $56.40

The difference between the two direct costs is the nonvalue-added cost:
Nonvalue-added cost = $68.70 - $56.40 = $12.30

Therefore, the nonvalue-added cost per unit is $12.30. Option C is the correct answer.

Question 20

Consider the following two activities: (1) performing warranty work, cost: $60,000. The warranty cost of the most efficient competitor is $10,000. (2) Purchasing components, cost: $100,000 (5,000 purchase orders). A study reveals that the most efficient level would use 2,500 purchase orders and entail a cost of $55,000. What is the total nonvalue-added cost?
A) $55,000
B) $60,000
C) $105,000
D) $100,000

Accepted Answer

The total nonvalue-added cost is the difference between the company's cost and the most efficient competitor's cost for both activities.

For activity 1, the nonvalue-added cost is $50,000 ($60,000 - $10,000). 
For activity 2, the nonvalue-added cost is $45,000 ($100,000 - $55,000).

Therefore, the total nonvalue-added cost is $95,000 ($50,000 + $45,000). The best choice would be to try to reduce these nonvalue-added costs, either by finding ways to perform warranty work more efficiently or by reducing the number of purchase orders needed for component purchases.

Quiz 7: Activity-Based Costing and Management

____ is concerned with doing the activity right the first time it is performed.

Environmental costs which the firm is not financially responsible are called ____ costs.

Assume that a company takes 3,500 hours to produce 10,000 units of a product. What is the cycle time?

Scrap and retesting are examples of ____ failure costs.

____ activities are performed in response to poor quality.

____ focuses on the relationship of activity inputs to activity outputs.

Packaging inspection and process acceptance are examples of ____.

Using the original design, a machine requires 12 hours of setup time. By redesigning the machine, the setup time is reduced by 25%. The cost per setup hour is $225. Calculate the reduction in nonvalue-added cost per setup.

Complying with the filing requirements of the IRS is an example of a

All of the following are supplier-driven activities except

A company takes 8,000 hours to produce 24,000 units of a product. What is the velocity?

A product currently requires 5 moves. By changing the plant layout, the number of moves can be reduced to 1. The cost per move is $30. Calculate the reduction in nonvalue-added cost of the moving activity.

Which of the following is not an example of a nonvalue-added activity?

Field trials and quality engineering are examples of ____.

A company spends $12,000 a year for inspecting, $41,000 for purchasing, and $22,000 for reworking products. A good estimate of nonvalue-added costs would be:

Which is not a component of process value analysis?

Activity-based management attempts to