Deck 14: Activity-Based Management

Question 1

What is the major source of information for the activity-based management system?

A)driver analysis
B)an activity-based costing system
C)a performance measurement system
D)product information

Answer 1

B

Question 2

What process dimension of the activity-based management model deals with "what"?

A)resources
B)driver analysis
C)activities
D)performance measures

Answer 2

C

Question 3

Which of the following is part of the two-dimensional activity-based management model?

A)resources,driver analysis,cost objectives,and performance measures
B)resources,driver analysis,cost objectives,and personnel selection
C)resources,driver analysis,personnel selection,and performance measures
D)resources,personnel selection,cost objectives,and performance measures

Answer 3

A

Question 4

What is the term for those activities necessary to remain in business?

A)activity inputs
B)activity outputs
C)activity drivers
D)value-added activities

Question 5

Which of the following is part of the cost and process dimensions of the activity-based management model?

A)resources
B)driver analysis
C)activities
D)cost objects

Question 6

Which of the following is an example of activity reduction?

A)improving cycle time so the need for expediting is eliminated
B)redesigning products to lead to a reduced cost set of activities
C)designing a new product that uses components already used by another product
D)reducing demand for customer complaint handling by improving product quality

Question 7

What process dimension of the activity-based management model deals with "why"?

A)resources
B)driver analysis
C)activities
D)performance measures

Question 8

What are processes?

A)tasks that must be completed to do work
B)outcomes of activities
C)activities linked to perform a specific objective
D)the linked set of value-creating activities from disposal of materials to disposal of the finished product by end consumers

Question 9

What is an activity output measure?

A)the number of outputs from a process
B)the cost of the activity measured
C)the effort expended to identify root causes
D)the number of times an activity is performed

Question 10

What is the term for the process of identifying,describing,and evaluating the activities an organization performs?

A)activity input
B)activity analysis
C)driver analysis
D)value-added activity

Question 11

What is the purpose of driver analysis?

A)to identify activities in a process
B)to identify the number of processes
C)to identify root causes of activity costs
D)to identify the complexity of processes

Question 12

What is the term for resources consumed by the activity in producing its output?

A)activity input
B)activity output
C)driver analysis
D)value-added activity

Question 13

Which of the following is part of the process dimension of the activity-based management model?

A)driver analysis,activity analysis,and resources
B)driver analysis,cost objectives,and performance measurement
C)resources,activity analysis,and performance measurement
D)driver analysis,activity analysis,and performance measurement

Question 14

What are non-value-added activities?

A)unnecessary inputs
B)valued outputs to internal users
C)valued outputs to external users
D)activities that meet the organization's needs,not the product needs

Question 15

What is the term for the effort expended to identify those factors that are the root causes of activity costs?

A)activity input
B)activity output
C)driver analysis
D)value-added activity

Question 16

What is an activity output measure?

A)the activities performed
B)the number of people performing the activities
C)the time and resources required to perform the activities
D)the number of time an activity is performed

Question 17

What are the results or products of an activity?

A)activity inputs
B)activity outputs
C)driver analyses
D)value-added activities

Question 18

What does activity-based management attempt to do?

A)identify and eliminate all unnecessary activities
B)decrease the efficiency of necessary activities
C)add new activities that decrease value
D)use a single overhead pool to allocate shared costs

Question 19

Which of the following is part of the cost dimension of the activity-based management model?

A)suppliers
B)driver analysis
C)budgeting
D)cost objects

Question 20

What are the two dimensions of an activity-based management model?

A)the cost dimension and the project dimension
B)the cost dimension and the process dimension
C)the quality dimension and the process dimension
D)the quality dimension and the activity dimension

Question 21

A company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average $4,000 per day. A competitor keeps 10 days of inventory on hand, and the competitor’s carrying costs average $2,000 per day.

-Refer to the figure.What are the non-value-added costs for the company?

A)$80,000
B)$40,000
C)$30,000
D)$20,000

Question 22

Which of the following is a necessary condition for classification as a value-added activity?

A)The activity produces no change of state.
B)The change of state was not achievable by preceding activities.
C)Activity is the last activity to be performed.
D)Activity is not necessary as part of the production process.

Question 23

What focuses on non-value-added activities?

A)activity sharing
B)activity elimination
C)activity selection
D)activity reduction

Question 24

What is the term for increasing the efficiency of necessary activities by using economies of scale?

A)activity sharing
B)activity elimination
C)activity selection
D)activity reduction

Question 25

Which of the following involves choosing among various sets of activities that are caused by competing strategies?

A)activity sharing
B)activity elimination
C)activity selection
D)activity reduction

Question 26

What process dimension of the activity-based management model deals with "how well"?

A)resources
B)driver analysis
C)activities
D)performance measures

Question 27

A time-and-motion study revealed that it should take 2 hours to produce a product that currently takes 6 hours to produce.Labour is $8 per hour.What are the non-value-added costs?

A)$0
B)$16
C)$32
D)$48

Question 28

A company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average $4,000 per day. A competitor keeps 10 days of inventory on hand, and the competitor’s carrying costs average $2,000 per day.

-Refer to the figure.Moulding the materials costs $30,000.What are the value-added costs?

A)$80,000
B)$40,000
C)$30,000
D)$20,000

Question 29

What are value-added costs?

A)standard costs based on currently attainable standards
B)standard costs based on ideal usage standards
C)standard costs based on cycle time
D)standard costs based on the value added

Question 30

Which of the following is an example of a value-added activity?

A)supervision of production workers
B)inspection of products
C)scheduling of production
D)reworking defective units

Question 31

Which of the following is a value-added activity?

A)moving
B)inspecting
C)processing
D)waiting

Question 32

What is multiplied by standard quantity to equal value-added costs?

A)non-value-added costs
B)currently attainable standards
C)standard price
D)actual price

Question 33

A company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average $4,000 per day. A competitor keeps 10 days of inventory on hand, and the competitor’s carrying costs average $2,000 per day.

-Refer to the figure.Moulding costs total $20,000.What are the value-added costs?

A)$75,000
B)$30,000
C)$20,000
D)$5,000

Question 34

Which of the following is a reason for managerial activity to be considered a value-added activity?

A)It brings about a change of state.
B)It fixes defective units.
C)It inspects the quality of the units.
D)It repeats a previous activity.

Question 35

What is the term for the effort to reduce costs of existing products and processes?

A)kaizen costing
B)activity elimination
C)activity selection
D)activity reduction

Question 36

What is the term for decreasing the time and resources required by different activities?

A)activity sharing
B)activity elimination
C)activity selection
D)activity reduction

Question 37

Which of the following is a financial measure of activity efficiency?

A)activity flexible budgeting
B)static budgeting
C)traditional standard setting
D)financial statement analysis

Question 38

Which of the following focuses on the relationship of activity outputs to activity inputs?

A)activity reduction
B)quality
C)time
D)efficiency

Question 39

What is the standard quantity for non-value-added activities that are unnecessary?

A)one
B)zero
C)actual quantity minus standard price
D)actual quantity plus standard price

Question 40

Which of the following is an example of a non-value-added manufacturing activity?

A)assembling
B)scheduling
C)finishing
D)grinding

Question 41

A time-and-motion study revealed that it should take 3 hours to produce a product that currently takes 7.5 hours to produce.Labour is $18 per hour.What are the non-value-added costs?

A)$81
B)$54
C)$27
D)$18

Question 42

Setup time for a product is 12 hours. A firm that uses JIT and produces the same product has reduced setup time to 1 hour. Setup labour is $6 per hour.

-Refer to the figure.What are the value-added costs?

A)$72
B)$66
C)$12
D)$6

Question 43

Each unit of product requires 16 kilograms of material.Due to scrap and rework,each unit has been averaging 18 kilograms of material.The material costs $4 per pound.What are the non-value-added costs?

A)$4
B)$8
C)$64
D)$72

Question 44

Larry Corporation has developed ideal standards for four activities: labour, materials, inspection, and receiving. Information is as follows:
$\begin{array}{llccc}\underline{\text { Activity }} &\underline{ \text { Activity Driver }} & \underline{\text {S Q}} & \underline{\text {A Q}}&\underline{\text {SP}}\\\text { Inspection } & \text { Inspection hours } & 0 & 40,000&\$12 \\\text { Labour } & \text { Hours } & 50,000 & 56,000&18 \\\text { Materials } & \text { Kilograms } & 100,000 & 105,000 &15\\\text { Receiving } & \text { Orders } & 150 & 190&450\end{array}$
The actual prices paid per unit of each activity driver were equal to the standard prices.

-Refer to the figure.What are the actual costs for receiving?

A)$85,500
B)$67,500
C)$49,500
D)$18,000

Question 45

Each unit of product requires 16 kilograms of material.Due to scrap and rework,each unit has been averaging 18 kilograms of material.The material costs $6 per pound.What would be the currently attainable standard for material if the company wants to reduce non-value-added costs by 25 percent next year?

A)16.00 kilograms
B)16.80 kilograms
C)17.50 kilograms
D)18.00 kilograms

Question 46

A company has 20 days of finished goods inventory on hand to avoid stockouts.The carrying costs of the inventory average $5,000 per day.What are the value-added costs?

A)$100,000
B)$10,000
C)$5,000
D)$0

Question 47

A company has 5 days of finished goods inventory on hand to avoid stockouts.The carrying costs of the inventory average $5,000 per day.What are the value-added costs?

A)$1,000
B)$5,000
C)$15,000
D)$25,000

Question 48

A firm's warranty costs are $125,000 per year.A competitor's warranty costs are $25,000 per year.What are the non-value-added costs?

A)$150,000
B)$125,000
C)$100,000
D)$25,000

Question 49

Larry Corporation has developed ideal standards for four activities: labour, materials, inspection, and receiving. Information is as follows:
$\begin{array}{llccc}\underline{\text { Activity }} &\underline{ \text { Activity Driver }} & \underline{\text {S Q}} & \underline{\text {A Q}}&\underline{\text {SP}}\\\text { Inspection } & \text { Inspection hours } & 0 & 40,000&\$12 \\\text { Labour } & \text { Hours } & 50,000 & 56,000&18 \\\text { Materials } & \text { Kilograms } & 100,000 & 105,000 &15\\\text { Receiving } & \text { Orders } & 150 & 190&450\end{array}$
The actual prices paid per unit of each activity driver were equal to the standard prices.

-Refer to the figure.What are the non-value-added costs for materials?

A)$1,575,000
B)$157,500
C)$150,000
D)$75,000

Question 50

Larry Corporation has developed ideal standards for four activities: labour, materials, inspection, and receiving. Information is as follows:
$\begin{array}{llccc}\underline{\text { Activity }} &\underline{ \text { Activity Driver }} & \underline{\text {S Q}} & \underline{\text {A Q}}&\underline{\text {SP}}\\\text { Inspection } & \text { Inspection hours } & 0 & 40,000&\$12 \\\text { Labour } & \text { Hours } & 50,000 & 56,000&18 \\\text { Materials } & \text { Kilograms } & 100,000 & 105,000 &15\\\text { Receiving } & \text { Orders } & 150 & 190&450\end{array}$
The actual prices paid per unit of each activity driver were equal to the standard prices.

-Refer to the figure.What are the non-value-added costs for inspection?

A)$480,000
B)$420,000
C)$60,000
D)$40,000

Question 51

Each unit of product requires 16 kilograms of material.Due to scrap and rework,each unit has been averaging 18 kilograms of material.The material costs $4 per pound.What are the value-added costs?

A)$4
B)$8
C)$64
D)$72

Question 52

Setup time for a product is 12 hours.A firm that uses JIT and produces the same product has reduced setup time by 1 hour.Setup labour is $20 per hour.What would be the currently attainable standard for setup time if the company wants to reduce non-value-added costs by 40 percent next year?

A)7.6 hours
B)7.2 hours
C)6.6 hours
D)4.8 hours

Question 53

Larry Corporation has developed ideal standards for four activities: labour, materials, inspection, and receiving. Information is as follows:
$\begin{array}{llccc}\underline{\text { Activity }} &\underline{ \text { Activity Driver }} & \underline{\text {S Q}} & \underline{\text {A Q}}&\underline{\text {SP}}\\\text { Inspection } & \text { Inspection hours } & 0 & 40,000&\$12 \\\text { Labour } & \text { Hours } & 50,000 & 56,000&18 \\\text { Materials } & \text { Kilograms } & 100,000 & 105,000 &15\\\text { Receiving } & \text { Orders } & 150 & 190&450\end{array}$
The actual prices paid per unit of each activity driver were equal to the standard prices.

-Refer to the figure.What are the value-added costs for labour?

A)$900,000
B)$792,000
C)$84,000
D)$75,000

Question 54

Setup time for a product is 12 hours. A firm that uses JIT and produces the same product has reduced setup time to 1 hour. Setup labour is $6 per hour.

-Refer to the figure.What are the non-value-added costs?

A)$72
B)$66
C)$12
D)$6

Question 55

A company has 5 days of finished goods inventory on hand to avoid stockouts.The carrying costs of the inventory average $2,500 per day.What are the non-value-added costs?

A)$500
B)$2,500
C)$5,000
D)$12,500

Question 56

A time-and-motion study revealed that it should take 2 hours to produce a product that currently takes 6 hours to produce.Labour is $8 per hour.What are the value-added costs?

A)$8
B)$16
C)$32
D)$48

Question 57

A company has 20 days of finished goods inventory on hand to avoid stockouts.The carrying costs of the inventory average $5,000 per day.What are the non-value-added costs?

A)$100,000
B)$10,000
C)$5,000
D)$250

Question 58

A company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average $4,000 per day. A competitor keeps 10 days of inventory on hand, and the competitor’s carrying costs average $2,000 per day.

-Refer to the figure..What would be the non-value-added costs?

A)$5,000
B)$30,000
C)$75,000
D)$80,000

Question 59

A firm's warranty costs are $125,000 per year.A competitor's warranty costs are $25,000 per year.Moulding costs are $50,000.What are the value-added costs?

A)$125,000
B)$100,000
C)$25,000
D)$50,000

Question 60

Sasha Cat Company sells one of its products for $100 each.Sales volume averages 750 units per year.Recently,its main competitor reduced the price of its product to $80.Sasha Cat Company expects sales to drop dramatically unless it matches the competitor's price.In addition,the current profit per unit must be maintained.Information about the product (for production of 750)is as follows: $\begin{array}{lrrr} &\underline{\text { SQ}}&\underline{\text { AQ}}& \underline{\text { Actual Cost}}\\\text { Materials (kilograms) } & 2,000 & 2,500 & \$ 25,000 \\\text { Labour (hours) } & 450 & 500 & 12,500 \\\text { Setups (hours) } & 0 & 600 & 7,500 \\\text { Material handling (moves) } & 0 & 300 & 3,750 \\\text { Warranties (number repaired) } & 0 & 200 & 15,000\end{array}$
What is the non-value-added cost per unit?

A)$38.33
B)$40.47
C)$41.67
D)$43.33

Question 61

What is the purpose of trend reporting on non-value-added costs?

A)tracing resources to cost objectives
B)assessing value content
C)defining root causes
D)seeing if cost reductions occurred as expected

Question 62

What sequence defines the maintenance subcycle?

A)establish-do-check-act
B)establish-act-do-check
C)do-act-establish-check
D)check-do-plan-act

Question 63

Rollo Company has developed cost formulas for the drivers of the following production activities:
$$\begin{array} { l l c c } \text { Driver } & \text { Activits } & \text { Fixed } & \text { Variale } \\\hline \text { Labour hours } & \text { Materials } & \$ 0 & \$ 20 \\\text { Labour hours } & \text { Labour } & 0 & 10 \\\text { Machine hours } & \text { Maintenance } & 10,000 & 8 \\\text { Machine hours } & \text { Machiring } & 50,000 & 2 \\\text { Number of setups } & \text { Inspections } & 30,000 & 200 \\\text { Number of setups } & \text { Setups } & 0 & 300 \\\text { Number of purchase arders } & \text { Purchasing } & 75,00 & 3\end{array}$$

-Refer to the figure.The activity levels are projected to be as follows: $$\begin{array} { l r } \text { Labour hours } & 1,000 \\\text { Machine hours } & 5,000 \\\text { Setups } & 100 \\\text { Purchase orders } & 50\end{array}$$ What is budgeted for this projected activity level?

A)$3,504,450
B)$1,655,430
C)$295,150
D)$165,543

Question 64

A time-and-motion study revealed that it should take 3 hours to produce a product that currently takes 7.5 hours to produce.Labour is $18 per hour.What are the value-added costs?

A)$27
B)$54
C)$81
D)$135

Question 65

What technique improves performance of activities and processes by searching for best practices?

A)value-added reporting
B)kaizen costing
C)trend reporting
D)benchmarking

Question 66

Rollo Company has developed cost formulas for the drivers of the following production activities:
$$\begin{array} { l l c c } \text { Driver } & \text { Activits } & \text { Fixed } & \text { Variale } \\\hline \text { Labour hours } & \text { Materials } & \$ 0 & \$ 20 \\\text { Labour hours } & \text { Labour } & 0 & 10 \\\text { Machine hours } & \text { Maintenance } & 10,000 & 8 \\\text { Machine hours } & \text { Machiring } & 50,000 & 2 \\\text { Number of setups } & \text { Inspections } & 30,000 & 200 \\\text { Number of setups } & \text { Setups } & 0 & 300 \\\text { Number of purchase arders } & \text { Purchasing } & 75,00 & 3\end{array}$$

-Refer to the figure.If the actual activity was 20 setups,the actual fixed cost for inspections was $28,000,and the variable cost for inspections was $5,000,what is the total variance for inspections?

A)$2,000 favourable
B)$2,000 unfavourable
C)$1,000 favourable
D)$1,000 unfavourable

Question 67

What technique improves performance of activities and processes by comparing the number of times an activity can be performed to the number actually performed?

A)value-added activity reporting
B)activity flexible budgeting
C)activity capacity reporting
D)activity trend reporting

Question 68

Rollo Company has developed cost formulas for the drivers of the following production activities:
$$\begin{array} { l l c c } \text { Driver } & \text { Activits } & \text { Fixed } & \text { Variale } \\\hline \text { Labour hours } & \text { Materials } & \$ 0 & \$ 20 \\\text { Labour hours } & \text { Labour } & 0 & 10 \\\text { Machine hours } & \text { Maintenance } & 10,000 & 8 \\\text { Machine hours } & \text { Machiring } & 50,000 & 2 \\\text { Number of setups } & \text { Inspections } & 30,000 & 200 \\\text { Number of setups } & \text { Setups } & 0 & 300 \\\text { Number of purchase arders } & \text { Purchasing } & 75,00 & 3\end{array}$$

-Refer to the figure.If the actual activity was 20 setups and the actual fixed cost for inspections was $28,000 and the variable cost for inspections was $5,000,what is the total variance for inspections due to?

A)favourable variance on fixed costs
B)unfavourable variance on fixed costs
C)favourable variance on variable costs
D)unfavourable variance on variable costs

Question 69

A firm's warranty costs are $425,000 per year.A competitor's warranty costs are $155,000 per year.What are the non-value-added costs?

A)$50,000
B)$75,000
C)$150,000
D)$425,000

Question 70

What sequence defines the continuous improvement subcycle of kaizen costing?

A)check-do-plan-act
B)do-check-plan-act
C)plan-do-check-act
D)establish-check-act-do

Question 71

A firm's warranty costs are $225,000 per year.A competitor's warranty costs are $75,000 per year.What are the non-value-added costs?

A)$50,000
B)$75,000
C)$150,000
D)$225,000

Question 72

What is the definition of unused capacity variance?

A)the difference in costs between activity availability and activity usage
B)the difference in costs between actual activity level acquired and the value-added standard quantity of activity that should have been used
C)the difference in costs between practical capacity of activity and the standard capacity of the activity
D)the difference in costs between practical capacity and actual capacity

Question 73

How is controlling the cost reduction process using kaizen costing accomplished?

A)through repetition of subcycle processes
B)by punishment of those not reaching the kaizen standard
C)through one-time adjustments
D)through reviews every four to five years

Question 74

Pillow Company sells one of its products for $35 each.Sales volume averages 2,400 units per year.Recently,its main competitor reduced the price of its product to $30.Pillow Company expects sales to drop dramatically unless it matches the competitor's price.In addition,the current profit per unit must be maintained.Information about the product (for production of 2,400)is as follows: $\begin{array}{lrrr} &\underline{\text { SQ}}&\underline{\text { AQ}}& \underline{\text { Actual Cost}}\\\text { Materials (kilograms) } & 7,200 &8,000 & \$ 12,000 \\\text { Labour (hours) } & 1,500 & 1,600 & 8,000 \\\text { Setups (hours) } & 0 & 1,600 &2,500 \\\text { Material handling (moves) } & 0 & 500 & 1,500 \\\text { Warranties (number repaired) } & 0 & 300 & 6,000\end{array}$

What is the non-value-added cost per unit?

A)$3.475
B)$4.190
C)$4.525
D)$4.875

Question 75

When different units that perform the same types of activities within the same organization are compared to the unit with the best performance,what is the practice called?

A)variance benchmarking
B)competitive benchmarking
C)external benchmarking
D)internal benchmarking

Question 76

Friedrich Company has developed ideal standards for four activities: labour, materials, inspection, and receiving.
Information is as follows:
$\begin{array}{llccc}\underline{\text { Activity }} &\underline{ \text { Activity Driver }} & \underline{\text {S Q}} & \underline{\text {A Q}}&\underline{\text {SP}}\\\text { Inspection } & \text { Inspection hours } & 0 & 40,000&\$4 \\\text { Labour } & \text { Hours } & 50,000 & 56,000&6 \\\text { Materials } & \text { Kilograms } & 100,000 & 105,000 &5\\\text { Receiving } & \text { Orders } & 150 & 190&150\end{array}$


The actual prices paid per unit of each activity driver were equal to the standard prices.

-Refer to the figure.What are the non-value-added costs for labour?

A)$300,000
B)$36,000
C)$28,000
D)$25,000

Question 77

What technique improves performance of activities and processes by predicting activity costs as activity output changes?

A)value-added reporting
B)activity flexible budgeting
C)kaizen costing
D)benchmarking

Question 78

Froelech Company has developed capacity standards. Information is as follows:
$\begin{array}{llr} \text {Standard cost of the activity capacity acquired } &\$150,000\\ \text { Standard cost of the activity capacity used } &100,000\\ \text { Standard cost of the actual activity used} &120,000\end{array}$


-Refer to the figure.What is the volume variance?

A)$20,000 unfavourable
B)$30,000 unfavourable
C)$35,000 unfavourable
D)$50,000 unfavourable

Question 79

Friedrich Company has developed ideal standards for four activities: labour, materials, inspection, and receiving.
Information is as follows:
$\begin{array}{llccc}\underline{\text { Activity }} &\underline{ \text { Activity Driver }} & \underline{\text {S Q}} & \underline{\text {A Q}}&\underline{\text {SP}}\\\text { Inspection } & \text { Inspection hours } & 0 & 40,000&\$4 \\\text { Labour } & \text { Hours } & 50,000 & 56,000&6 \\\text { Materials } & \text { Kilograms } & 100,000 & 105,000 &5\\\text { Receiving } & \text { Orders } & 150 & 190&150\end{array}$


The actual prices paid per unit of each activity driver were equal to the standard prices.

-Refer to the figure.What are the value-added costs for materials?

A)$525,000
B)$500,000
C)$50,000
D)$25,000

Question 80

Rollo Company has developed cost formulas for the drivers of the following production activities:
$$\begin{array} { l l c c } \text { Driver } & \text { Activits } & \text { Fixed } & \text { Variale } \\\hline \text { Labour hours } & \text { Materials } & \$ 0 & \$ 20 \\\text { Labour hours } & \text { Labour } & 0 & 10 \\\text { Machine hours } & \text { Maintenance } & 10,000 & 8 \\\text { Machine hours } & \text { Machiring } & 50,000 & 2 \\\text { Number of setups } & \text { Inspections } & 30,000 & 200 \\\text { Number of setups } & \text { Setups } & 0 & 300 \\\text { Number of purchase arders } & \text { Purchasing } & 75,00 & 3\end{array}$$

-Refer to the figure.What is the budgeted inspection cost for 20 setups?

A)$175,860
B)$40,000
C)$34,000
D)$30,000