Deck 11: Strategic Cost Management

Question 1

Exploiting internal linkages involves the assessment of management reliability.

Answer 1

False

Question 2

The objective of strategic cost management is to reduce costs while strengthening strategic positions.

Answer 2

True

Question 3

Exploiting customer linkages is not important since customers do not affect profitability.

Answer 3

False

Question 4

In a job-order setting using JIT, repetitive business is separated from unique orders.

Question 5

Target costing provides a method for reducing costs by exploiting customer and supplier linkages.

Question 6

Value-chain analysis is identifying and exploiting internal and external linkages to achieve strong strategic positions.

Question 7

Exploiting supplier linkages is the exploitation of a firm's internal activities.

Question 8

Strategic cost management is the identification of strategies to develop a competitive advantage.

Question 9

The structure for a JIT environment is a vastly complicated process costing system.

Question 10

JIT manufacturing eliminates waste by producing products only when, and in the quantities needed.

Question 11

Life-cycle costs are all costs associated with a product during the production viewpoint.

Question 12

Strategic decision making is important to achieve good inventory control.

Question 13

In a JIT environment, many overhead costs are directly traceable to products.

Question 14

A major difference between traditional and JIT environments is the degree of responsibility given to workers in the organization.

Question 15

Life-cycle cost management involves two types of life-cycle viewpoints: the marketing viewpoint and the production viewpoint.

Question 16

In JIT purchasing, materials are usually at warehouse long before they are needed.

Question 17

Strategic cost management emphasizes the importance of an external focus and the need to recognize and exploit internal and external linkages.

Question 18

Acceptable quality level (AQL) allows defects to occur within predetermined parameters.

Question 19

There are two general cost management strategies: cost leadership and focusing.

Question 20

Accounting is simplified in the JIT system by the use of backflush costing.

Question 21

The assignments to suppliers and customers that provide the best cost information needed are called __________ assignments.

Question 22

Which of the following refers to the complete range of tangible and intangible benefits that a customer receives from a purchased product?

A)The value product
B)The activity product
C)The strategic product
D)The total product

Question 23

Which of the following strategies strives to increase customer value by increasing customer realization?

A)A value chain strategy
B)A cost-leadership strategy
C)A differentiation strategy
D)A target costing strategy

Question 24

The manufacturing system focused on reducing inventory levels and waste is called __________ manufacturing.

Question 25

Choosing alternative strategies that provide long-term growth involves __________ decision making.

Question 26

The strategy which involves choosing among alternative strategies with the goal of selecting a strategy or strategies that provides a company with reasonable assurance of long-term growth and survival is called:

A)Competitive advantage
B)Strategic cost management
C)Strategic decision making
D)Customer value

Question 27

__________ analysis relies on identifying and exploiting internal and external linkages.

Question 28

A strategy to provide the same or better value to customers at a lower cost than offered by competitors to achieve competitive advantage is:

A)a value chain strategy.
B)a cost leadership strategy.
C)a linkage strategy.
D)a focusing strategy.

Question 29

The difference between what a customer receives and what the customer gives up is called:

A)Customer value
B)Strategic cost management
C)Competitive advantage
D)Strategic decision making

Question 30

The creation of customer value for same or lower cost than competitors is called __________ advantage.

Question 31

The length of time a product serves the needs of customers is called the __________ life.

Question 32

The strategy to create better customer value for the same or lower cost than competitors or creating equivalent value for lower cost than offered by competitors is called:

A)Strategic decision making
B)Competitive advantage
C)Strategic cost management
D)Total product

Question 33

In traditional and JIT environments using direct tracing, the manufacturing costs assigned to products are the direct materials costs and the __________ costs.

Question 34

The stage during which a product loses market acceptance is called the __________ stage.

Question 35

When a computer company selects a mix of strategies in order to create sustainable competitive advantage, it is following a

A)focusing strategy.
B)low-cost strategy.
C)differentiation strategy.
D)strategic positioning strategy.

Question 36

Accounting for the cost accounting cycle in a JIT environment is simplified by using __________ costing.

Question 37

When a computer company targets customers in the South, it is following a

A)focusing strategy.
B)low-cost strategy.
C)differentiation strategy.
D)strategic allocation strategy.

Question 38

The relationships among activities that are performed with a firm's portion of the value chain is(are) called:

A)Internal linkages
B)External linkages
C)Industrial value chain
D)Both a and b

Question 39

the difference between what the customer receives and gives up is the __________ .

Question 40

The use of cost data to develop and identify superior strategies that will produce a sustainable competitive advantage is called:

A)Strategic decision making
B)Competitive advantage
C)Strategic cost management
D)Customer value

Question 41

Ambrosia Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30 parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for the 30 unit configuration and expected activity demand for the 9 part configuration are provided below: $\begin{array}{|l|l|l|l|l|}\hline{\text { Activities }} & \text { Activity } & \text { Activity } & \text { Current } & \text { Expected } \\& \text { Driver } & \text { Capacity } & \text { Activity Demand } & \text { Activity Demand } \\\hline \text { Materials } & \begin{array}{l}\text { pumber of } \\\text { uarts }\end{array} & 300,000 & 300,000 & 90,000 \\\hline \text { Assembly } & \begin{array}{l}\text { direct } \\\text { labor } \\\text { hours }\end{array} & 20,000 & 20,000 & 6,000 \\\hline \begin{array}{l}\text { Purchasing } \\\text { parts }\end{array} & \begin{array}{l}\text { orders of }\end{array} & 20,000 & 16,000 & 8,000 \\\hline\end{array}$
Materials usage has a rate of $6 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
What is the total cost reduction of the new design?

A)$2,208,000
B)$2,194,000
C)$1,628,000
D)$1,624,000

Question 42

Analyzing how costs and other financial factors vary as different bundles of activities are considered to strengthen a firm's strategic position is the process of

A)exploiting linkages.
B)design.
C)cost driver analysis.
D)distribution.

Question 43

The operational activity of inspecting is classified as a

A)unit-level activity.
B)batch-level activity.
C)product-level activity.
D)facility-level activity.

Question 44

When a computer manufacturing company addresses supplier production problems, it is focusing on

A)external linkages.
B)internal linkages.
C)a differentiation strategy.
D)a cost leadership strategy.

Question 45

The industry value chain includes

A)shareholder value chain activities as well as firm activities.
B)buyer and supplier value chain activities as well as firm activities.
C)only firm activities.
D)only firm production activities.

Question 46

Ambrosia Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30 parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for the 30 unit configuration and expected activity demand for the 9 part configuration are provided below: $\begin{array}{|l|l|l|l|l|}\hline{\text { Activities }} & \text { Activity } & \text { Activity } & \text { Current } & \text { Expected } \\& \text { Driver } & \text { Capacity } & \text { Activity Demand } & \text { Activity Demand } \\\hline \text { Materials } & \begin{array}{l}\text { pumber of } \\\text { uarts }\end{array} & 300,000 & 300,000 & 90,000 \\\hline \text { Assembly } & \begin{array}{l}\text { direct } \\\text { labor } \\\text { hours }\end{array} & 20,000 & 20,000 & 6,000 \\\hline \begin{array}{l}\text { Purchasing } \\\text { parts }\end{array} & \begin{array}{l}\text { orders of }\end{array} & 20,000 & 16,000 & 8,000 \\\hline\end{array}$
Materials usage has a rate of $6 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
If 10,000 units are being produced and the sales price is $500, what is the new sales price if the cost savings are passed on to the consumer?

A)$129.80
B)$317.40
C)$237.00
D)$337.20

Question 47

Identifying profitable and unprofitable customers is an example of exploiting

A)supplier linkages.
B)the product life cycle.
C)consumable life.
D)customer linkages.

Question 48

The factor(s) that describe the relationships of a firm's value chain activities that are performed with its suppliers and customers is(are) called:

A)Internal linkages
B)External linkages
C)Industrial value chain
D)Both a and b

Question 49

The operational activity of moving inventory is classified as a

A)unit-level activity.
B)batch-level activity.
C)product-level activity.
D)facility-level activity.

Question 50

The structural and executional factors that determine the long-term cost structure of an organization are called:

A)Organizational activities
B)Operational cost drivers
C)Operational activities
D)Organizational cost drivers

Question 51

Ambrosia Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 30 parts but through redesign has reduced the number of parts to 9. Then current activity capacity and demand for the 30 unit configuration and expected activity demand for the 9 part configuration are provided below: $\begin{array}{|l|l|l|l|l|}\hline \text { Activities } & \text { Activity } & \text { Activity } & \text { Current } & \text { Expected } \\\text { Driver } & \text { Capacity } & \text { Activity Demand } & \text { Activity Demand } \\\hline \text { Materials } & \text { pumber of } & 300,000 & 300,000 & 90,000 \\\text { usage } & \text { parts } & \\\hline \text { Assembly } & \begin{array}{l}\text { direct } \\\text { labor } \\\text { hours }\end{array} & 20,000 & 20,000 & 6,000 \\\hline \begin{array}{l}\text { Purchasing } \\\text { parts }\end{array} & \begin{array}{l}\text { number of } \\\text { orders }\end{array} & 20,000 & 16,000 & 8,000 \\\hline\end{array}$
Materials usage has a rate of $6 per part and no fixed costs. Assembly has a rate of $20 per labor hour with no fixed component. Purchasing requires clerks that can process 5,000 purchase orders. Each clerk earns $40,000 per year. There is also a $1 per order processing cost.
What is the cost savings from purchasing parts?

A)$80,000
B)$88,000
C)$48,000
D)$40,000

Question 52

The last link of the internal value chain is

A)design.
B)service.
C)market.
D)distribute.

Question 53

The operational activity of assembling parts is an example of a

A)unit-level activity.
B)batch-level activity.
C)product-level activity.
D)facility-level activity.

Question 54

The operational activity of redesigning products is classified as a

A)unit-level activity.
B)batch-level activity.
C)product-level activity.
D)facility-level activity.

Question 55

Burgandy Corp. is a manufacturer of equipment used in manufacturing. It currently produces a product with 20 parts. Through redesign, it has reduced the number of parts to 8. The current activity capacity and demand for the 20 unit configuration and expected activity demand for the 8 part configuration are provided below: $$\begin{array} { | l | l | r | r | c | } \hline \text { Activities } & \text { Activity Driver } & \begin{array} { c } \text { Activity } \\\text { Capacity }\end{array} & \begin{array} { c } \text { Current } \\\text { Activity } \\\text { Demand }\end{array} & \begin{array} { c } \text { Expected } \\\text { Activity } \\\text { Demand }\end{array} \\\hline \text { Materials usage } & \text { Number of parts } & 250,000 & 250,000 & 100,000 \\\hline \text { Assembling parts } & \text { Direct labor hours } & 15,000 & 15,000 & 6,000 \\\hline \text { Purchasing parts } & \text { Number of orders } & 18,000 & 14,000 & 7,000 \\\hline\end{array}$$
Materials usage has a rate of $5 per part and no fixed costs. Assembly has a rate of $25 per labor hour with no fixed component. Purchasing requires two clerks that can process 2,000 purchase orders. Each clerk earns $33,000 per year. There is also a $2 per order processing cost.
What are the savings in materials usage cost with the new design changes?

A)$780,000
B)$820,000
C)$750,000
D)$120,000

Question 56

Activities required to design, develop, produce, market, distribute, and service a product are known as

A)whole life activities.
B)value-chain activities.
C)target activities.
D)overhead.

Question 57

The first link of the internal value chain is

A)design.
B)develop.
C)market.
D)distribute.

Question 58

The industrial value-chain analysis

A)recognizes only complex linkages within the firm.
B)is not compatible with differentiation strategies.
C)determines a linked set of value-creating activities.
D)requires a firm to operate across the entire value chain.

Question 59

The factors that drive the cost of day-to-day activities performed as a result of the structure and processes selected by the organization are called:

A)Organizational activities
B)Organizational cost drivers
C)Operational cost drivers
D)Operational activities

Question 60

The operational activity of setting up equipment is classified as a

A)unit-level activity.
B)batch-level activity.
C)product-level activity.
D)facility-level activity.

Question 61

The viewpoint that describes the general sales pattern of a product as it passes through the introduction, growth, maturity, and decline stages is called the:

A)Marketing viewpoint
B)Customer viewpoint
C)Production viewpoint
D)Accounting viewpoint

Question 62

Which of the following are true about total quality control?

A)Total quality control is an approach to differentiate and reduce overall quality costs.
B)Total quality control demands production of defect-free products.
C)Total quality control links suppliers closely with the firm.
D)All of these statements are true about total quality control.

Question 63

The period of time when sales increase at a decreasing rate is called the:

A)introduction stage
B)growth stage
C)decline stage
D)maturity stage

Question 64

Amber Products Company manufactures a product sold to retailers. It is considering suppliers for its process. The supplier quality involves four activity areas: $\begin{array}{ll}\text { Activity Area } & \text { Cost Driver and Rate } \\\text { Order cost } & \$ 150 \text { per purchase order } \\\text { Defective units } & \$ 160 \text { per unit internal failure costs } \\\text { Delivery trips } & \$ 4 \text { per delivery mile } \\\text { Carrying cost } & \$ 2 \text { per order }\end{array}$
The following supplier information is given:
$\begin{array}{lrr}&X1&Y2&Z3\\\text { Materials units needed } & 60,000 & 60,000& 60,000 \\\text { Actual purchase price } & \$ 6.00 & \$ 5.00 &\$4.00\\\text { Number of purchase orders } & 25 & 20 &10\\\text { Number of defects } & 7 & 15 &0\\\text { Number of deliveries } & 25 & 35&15\end{array}$
What is the cost of supplier Z1?

A)$756,228
B)$241,580
C)$325,650
D)$413,000

Question 65

The consumable life of a product is of most interest to the:

A)government.
B)auditor.
C)creditor.
D)customer.

Question 66

Awesome Products Company manufactures a product sold to retailers. It is considering suppliers for its process. The supplier quality involves four activity areas: $\begin{array}{ll}\text { Activity Area } & \text { Cost Driver and Rate } \\\text { Order cost } & \$ 120 \text { per purchase order } \\\text { Defective units } & \$ 200 \text { per unit internal failure costs } \\\text { Delivery trips } & \$ 5 \text { per delivery mile } \\\text { Carrying cost } & \$ 1 \text { per order }\end{array}$

$\begin{array}{lrr}\text { The following supplier information is given: }&X3&Y2&Z1\\\text { Materials units needed } & 100,000 & 100,000 & 100,000 \\\text { Actual purchase price } & \$ 5 & \$ 4.99&\$5.01\\ \text { Number of purchase orders } & 20 & 30&18 \\\text { Number of defects } & 6 & 12&0 \\\text { Number of deliveries } & 20 & 30&18\end{array}$
Which supplier is least costly?

A)X3
B)Y2
C)Z1
D)They are equally costly.

Question 67

Life-cycle cost management consists of

A)actions taken to enable a product to be designed, developed, produced, marketed, distributed, operated, maintained, serviced, and disposed of in order to maximize profits.
B)actions to extend the life of a product through design, development, production, and maintenance.
C)actions that focus on minimizing the cost of developing, designing, producing, distributing, operating, servicing, and disposal of a product.
D)actions taken to design, develop, test, market, distribute, maintain, service, and dispose of a product to maximize revenues.

Question 68

The time a product exists-from conception to abandonment is called the:

A)Revenue producing life
B)Product life cycle
C)Consumable life
D)Introduction stage

Question 69

Blue Vibrance Company sells a product used in many manufacturing processes. The sales activity involves three activity areas: $\begin{array}{ll}\text { Activity Area } & \text { Cost Driver and Rate } \\\text { Order taking } & \$ 100 \text { per purchase order } \\\text { Sales visits } & \$ 50 \text { per visit } \\\text { Delivery vehicles } & \$ 1 \text { per delivery mile }\end{array}$
The following customer information is given: $\begin{array}{lrr}&\mathrm{AX} & \mathrm{BY} & \mathrm{DZ}\\\text { Units sold } & 100,000 & 80,000&60,000 \\\text { List price } & \$ 50 & \$ 50&\$50 \\\text { Actual sal es price } & \$ 45 & \$ 48 &\$50\\\text { Number of purchase orders } & 30 & 20 &10\\\text { Number of sales visits } & 6 & 5&3 \\\text { Number of delivery miles } & 100 & 80&60\end{array}$
Which customer is most profitable?

A)AX
B)BY
C)DZ
D)They are equally profitable.

Question 70

Which of the following is NOT a stage of the consumable life-cycle viewpoint?

A)disposal
B)maintaining
C)logistics
D)purchasing

Question 71

Blue Vibrance Company sells a product used in many manufacturing processes. The sales activity involves three activity areas: $\begin{array}{ll}\text { Activity Area } & \text { Cost Driver and Rate } \\\text { Order taking } & \$ 100 \text { per purchase order } \\\text { Sales visits } & \$ 50 \text { per visit } \\\text { Delivery vehicles } & \$ 1 \text { per delivery mile }\end{array}$
$\text { The following customer information is given: }$
$\begin{array}{lrr}&\mathrm{AX} & \mathrm{BY} & \mathrm{DZ}\\\text { Units sold } & 100,000 & 80,000&60,000 \\\text { List price } & \$ 50 & \$ 50&\$50 \\\text { Actual sal es price } & \$ 45 & \$ 48 &\$50\\\text { Number of purchase orders } & 30 & 20 &10\\\text { Number of sales visits } & 6 & 5&3 \\\text { Number of delivery miles } & 100 & 80&60\end{array}$
What is the profitability of customer BY?

A)$4,000,000
B)$3,840,000
C)$3,837,670
D)$2,330,000

Question 72

The period of time when sales increase at an increasing rate is called the:

A)introduction stage
B)maturity stage
C)growth stage
D)decline stage

Question 73

Awesome Products Company manufactures a product sold to retailers. It is considering suppliers for its process. The supplier quality involves four activity areas: $\begin{array}{ll}\text { Activity Area } & \text { Cost Driver and Rate } \\\text { Order cost } & \$ 120 \text { per purchase order } \\\text { Defective units } & \$ 200 \text { per unit internal failure costs } \\\text { Delivery trips } & \$ 5 \text { per delivery mile } \\\text { Carrying cost } & \$ 1 \text { per order }\end{array}$ $\text { The following supplier information is given: }$
$\begin{array}{lrr}&X3&Y2&Z1\\\text { Materials units needed } & 100,000 & 100,000 & 100,000 \\\text { Actual purchase price } & \$ 5 & \$ 4.99&\$5.01 \\\text { Number of purchase orders } & 20 & 30&18 \\\text { Number of defects } & 6 & 12 &0\\\text { Number of deliveries } & 20 & 30&18\end{array}$
Which supplier has the most defective units?

A)X3
B)Y2
C)Z1
D)They are equal.

Question 74

Which of the following is NOT a stage of the marketing viewpoint of the product life cycle?

A)decline
B)growth
C)maturity
D)production

Question 75

Blue Vibrance Company sells a product used in many manufacturing processes. The sales activity involves three activity areas: $\begin{array}{ll}\text { Activity Area } & \text { Cost Driver and Rate } \\\text { Order taking } & \$ 100 \text { per purchase order } \\\text { Sales visits } & \$ 50 \text { per visit } \\\text { Delivery vehicles } & \$ 1 \text { per delivery mile }\end{array}$ The following customer information is given: $\begin{array}{lrr}&\mathrm{AX} & \mathrm{BY} & \mathrm{DZ}\\\text { Units sold } & 100,000 & 80,000&60,000 \\\text { List price } & \$ 50 & \$ 50&\$50 \\\text { Actual sal es price } & \$ 45 & \$ 48 &\$50\\\text { Number of purchase orders } & 30 & 20 &10\\\text { Number of sales visits } & 6 & 5&3 \\\text { Number of delivery miles } & 100 & 80&60\end{array}$ Which customer has the least activity costs?

A)AX
B)BY
C)DZ
D)They are the same.

Question 76

The stage during which the product loses market acceptance is called the:

A)decline stage
B)growth stage
C)maturity stage
D)introduction stage

Question 77

Which of the following viewpoints of a product life cycle describes the life cycle stages by changes in the activities performed and emphasizes life-cycle costs?

A)The revenue viewpoint
B)The production viewpoint
C)The supplier viewpoint
D)The maturity viewpoint

Question 78

Which of the following stages in the product life cycle focuses on obtaining a foothold in the market from a marketing viewpoint?

A)The maturity stage
B)The value stage
C)The introduction stage
D)The consumable stage

Question 79

Which stage in the marketing viewpoint is characterized by preproduction and startup activities?

A)decline
B)introduction
C)growth
D)maturity

Question 80

In activity-based costing, supplier costs

A)must be narrower, including only the purchase price.
B)are allocated to products arbitrarily.
C)include costs of quality, reliability and timeliness and are assigned to products on a causal basis.
D)all of these statements are true.