Deck 3: The REA Enterprise Ontology

Question 1

Creating value has a cost.

Answer 1

True

Question 2

"Margin" in Porter's value chain is the difference between value and cost.

Answer 2

True

Question 3

The acquisition/payment business process includes the sequence of activities involved in delivering goods and services to customers for payment.

Answer 3

False

Question 4

The sales/collection business process includes the activities involved in acquiring, paying for, and maintaining the goods and services needed by an organization.

Question 5

The conversion business process focuses on converting goods and services acquired into goods and services for sale.

Question 6

Porter's value chain is defined as a set of business activities that add value or usefulness to an organization's products or services.

Question 7

Support activities in an organization's value chain are viewed by Michael Porter as the critical activities in running a business.

Question 8

Outbound logistics are defined by Michael Porter as support value activities associated with collecting, storing, and physically distributing the products or services.

Question 9

Human resource management is defined by Michael Porter as the set of support activities involved in recruiting, hiring, training, developing, and compensating all types of personnel.

Question 10

Many of the critical steps of building an information system have little to do with programming a computer.

Question 11

The process of building an information system begins with selection of an appropriate software package.

Question 12

The task level of the REA enterprise ontology is also called the big picture view.

Question 13

The concept of creating value applies only to for-profit enterprises.

Question 14

Municipalities do not create value in exchange for the taxes paid by their citizens.

Question 15

Procurement, the function of purchasing inputs to a firm's value chain, is made up of operating events in the REA enterprise ontology but is considered a support value activity in Porter's value chain.

Question 16

Customers, suppliers, investors, and creditors are external business partners; whereas employees are internal business partners in an enterprise value system.

Question 17

Labor is an enterprise resource.

Question 18

The causal relationship between a give event and a take event is a duality relationship.

Question 19

Business processes in an enterprise value chain are linked together by the agents who perform activities in each of the related processes.

Question 20

In converting an entrepreneurial business script into an enterprise value chain, the financing process of the value chain is usually made up of two different scenes.

Question 21

Each scene on an enterprise value chain diagram must contain at least one economic increment event and one economic decrement event.

Question 22

Different attributes are usually captured for different categories of cash receipt events, so enterprises usually treat each category of cash receipt event as a separate event set.

Question 23

If labor is the resource outflow from the payroll process of an enterprise value chain, the payroll process must contain an economic increment event to obtain the labor.

Question 24

A duality relationship can only consist of two events.

Question 25

Using objects that are common to all enterprises as base objects in a system and using unique objects as nonfoundational elements helps in the building of systems that may be integrated with solid connections rather than tied together with string.

Question 26

Organizations create value by

A) subtracting costs from revenues.
B) keeping backup copies of all source documents.
C) providing goods and services customers want.
D) using technology to mechanize old ways of doing business.
E) recording data about business transactions.

Question 27

An internally cost-effective organization might be unsuccessful because it

A) also effectively integrates and coordinates all business functions.
B) has no need to outsource any business functions.
C) has competitors who better meet the needs of customers.
D) also has created effective strategic alliances with trading partners.
E) support activities facilitate accomplishing its primary activities.

Question 28

Which of the following is NOT one of the three primary integrated business processes found in most organizations?

A) Conversion process
B) Sales/collection process
C) Data flow diagramming process
D) Acquisition /payment process
E) All of the above are integrated business processes found in most organizations

Question 29

The objective of the acquisition/payment business process of most organizations is to

A) convert acquired resources into goods and services for customers
B) sell and deliver goods and services to customers and collect payment
C) transform raw inputs into finished goods and services
D) acquire, maintain, and pay for the resources needed by the organization
E) both C and D above are objectives of the acquisition/payment process

Question 30

The objective of the conversion business process of most organizations is to

A) convert acquired resources into goods and services for customers
B) sell and deliver goods and services to customers and collect payment
C) transform raw inputs into finished goods and services
D) acquire, maintain, and pay for the resources needed by the organization
E) both A and C above are objectives of the conversion process

Question 31

The objective of the sales/collection business process of most organizations is to

A) convert acquired resources into goods and services for customers
B) sell and deliver goods and services to customers and collect payment
C) transform raw inputs into finished goods and services
D) acquire, maintain, and pay for the resources needed by the organization
E) both A and B above are objectives of the sales/collection process

Question 32

The relationship typically found between sale and cash receipt in the sales/collection process of an enterprise value chain is called a(n):

A) duality relationship
B) stockflow relationship
C) responsibility relationship
D) resultant relationship
E) authorization relationship

Question 33

Which of the following statements best describes the purpose of the value system
Level of the REA ontology?

A) To portray the resource exchanges made between an enterprise and its various external business partners
B) To portray the resource flow connections between the internal business processes (transaction cycles) of an enterprise
C) To communicate the details of specific workflow activities that need to be performed in a particular sequence
D) To portray the resources, events, and agents, and the appropriate relationships among them for a particular business process (transaction cycle)
E) To reflect individual steps involved in accomplishing events in an enterprise

Question 34

What is the most likely label to put on the arrow going into the payroll process for this partial value chain level REA model for an automobile manufacturer?

A) Labor and services are equally likely as inputs to the payroll process in a value chain level REA model for an automobile manufacturer
B) Labor
C) Cash
D) Services
E) Supplies

Question 35

Which of the following objects would NOT appear in a value system level REA model?

A) supplier
B) cash
C) finished goods
D) attributes
E) customer

Question 36

Which of the following objects typically do NOT appear in a value chain level REA model?

A) duality relationships
B) participation relationships
C) economic increment events
D) economic decrement events
E) resource flows

Question 37

In the following partial value chain level REA model for an automobile manufacturer, to what business process is the outgoing arrow from the payroll process most likely to be connected?

A) Operating assets acquisition/payment
B) Sales/collection
C) Financing
D) Conversion
E) Inventory acquisition/payment

Question 38

In the following partial value chain level REA model for an automobile manufacturer, what must be included inside the payroll process circle to correspond to the outgoing arrow?

A) an external agent
B) an economic decrement event
C) an economic increment event
D) an internal agent
E) a related resource flow

Question 39

Goods or services that are outputs of the conversion process in a company's value
Chain generally become inputs to the

A) financing process
B) training process
C) sales/collection process
D) acquisition/payment process
E) human resource process

Question 40

An enterprise donates money to charitable organizations each year. Into which category of external business partners would the charitable organizations fit in the enterprise's value system?

A) Investors and creditors
B) Suppliers (vendors)
C) Employees
D) Customers
E) None - charitable organizations are not external business partners because they don't provide resources back to the enterprise in exchange for the money the enterprise donated.

Question 41

What two relationships in the REA enterprise ontology are represented on value chain level diagrams?

A) stockflow and duality
B) stockflow and fulfillment
C) fulfillment and participation
D) fulfillment and duality
E) duality and participation

Question 42

In the following partial value chain level REA model for a wholesale distributor of dental equipment, what must be included inside the sales/collection process circle to correspond to the outgoing arrow?

A) an economic decrement event
B) an internal agent
C) a fulfillment relationship
D) an economic increment event
E) a related resource flow

Question 43

In the following partial value chain level REA model for a wholesale distributor of golf accessories, from what business process does the incoming arrow to the sales/collection process likely originate?

A) Financing
B) Acquisition/Payment
C) Conversion
D) Payroll
E) None of the above

Question 44

What economic event typically causes finished goods to flow from a conversion process to a sales/collection process in a typical enterprise value chain?

A) Work-in-process Job
B) Purchase or receipt of goods
C) Sale
D) Rental
E) Cash receipt

Question 45

What are the three basic business processes common to all organizations?

Question 46

How are business processes linked together into a value chain in the REA enterprise ontology?

Question 47

What two resources are usually shared between the acquisition/payment process and the sales/collection process?

Question 48

What kinds of things can organizations acquire? List at least four.

Question 49

List the five primary value activities identified by Michael Porter.

Question 50

List the four support value activities identified by Michael Porter.

Question 51

Match each of the following business events with the business process to which it relates.

-Assemble component parts

A) Acquisition/Payment Process
B) Sales/Collection Process
C) Conversion Process

Question 52

Match each of the following business events with the business process to which it relates.

-Pay employees

A) Acquisition/Payment Process
B) Sales/Collection Process
C) Conversion Process

Question 53

Match each of the following business events with the business process to which it relates.

-Receive goods from supplier

A) Acquisition/Payment Process
B) Sales/Collection Process
C) Conversion Process

Question 54

Match each of the following business events with the business process to which it relates.

-Deliver goods to customer

A) Acquisition/Payment Process
B) Sales/Collection Process
C) Conversion Process

Question 55

List at least four categories of external business partners for a typical enterprise.

Question 56

List the 3 steps in creating a REA value chain level diagram.

Question 57

Provide one example of an activity that is considered an economic event in the REA enterprise ontology but is not considered a primary value activity in Porter's value chain.

Question 58

What are the primary value activities and the support activities that make up Michael Porter's value chain? Briefly explain each one.

Question 59

Thunder Splash Water Park (TSWP) offers customers the opportunity to cool off and play on water slides and in various swimming pools when the weather is hot. Customers may purchase daily tickets or annual passes. TSWP's main resources are fixed assets such as slides, pools, and buildings that house concession stands and restrooms. Employee labor is also a major resource for TSWP, as employees are needed to run the ticket booth, concession stands, and water slides, and to serve as lifeguards at the pools. TSWP contracts with outside suppliers for asset maintenance services. An independently wealthy entrepreneur owns TSWP and has never needed any outside source of funding.
Required:
Create a value system level REA model for Thunder Splash Water Park

Question 60

Oinkerstripes Inc. (OI) is a company that creates stuffed animals (primarily pigs) for sale to toy stores across the globe. OI purchases fabric, stuffing, beads, and other raw materials from suppliers for use in its manufacturing process. OI also purchases equipment and services from suppliers. OI has approximately 100 employees who work on assembly lines in four different countries. The manufacturing process uses the raw materials, equipment, and labor to produce finished stuffed animals. OI is not publicly held, but occasionally needs bank financing.
Required:
Using labels that are specific to OI's needs, create a detailed value chain level REA model for Oinkerstripes Inc.

Question 61

Daisy's Dollar Store (DDS) is a small retail enterprise that purchases inventory at low prices (typically 65 cents per item) and sells the inventory at not quite so low prices (typically $1 per item). Goods are purchased in bulk quantities from wholesalers who specialize in dollar store merchandise. DDS is family-owned but has had to borrow money from its bank at several points in time. Because DDS is family-owned and operated, the attitude is "we'll just do whatever it takes to make the business work" and they feel no need to track labor at any level of detail. DDS always repays its loans and is a profitable business. Goods are sold to customers who come into the store and select the merchandise from the display racks. DDS does not advertise; it has a prime location in a high traffic area and generates plenty of business without advertising. Customers are required to pay cash; no checks or credit cards are accepted. DDS does not "hold" items; everything is sold on a first come-first served basis.
Required:
Create a value chain level REA model for Daisy's Dollar Store

Question 62

Daisy's Dollar Store (DDS) is a small retail enterprise that purchases inventory at low prices (typically 65 cents per item) and sells the inventory at not quite so low prices (typically $1 per item). Goods are purchased in bulk quantities from wholesalers who specialize in dollar store merchandise. Services such as utilities are purchased from other suppliers. DDS is family-owned but has had to borrow money from its bank at several points in time. Because DDS is family-owned and operated, the attitude is "we'll just do whatever it takes to make the business work" and they have decided not to track labor at any level of detail. DDS always repays its loans and is a profitable business. Goods are sold to customers who come into the store and select the merchandise from the display racks. DDS does not advertise; it has a prime location in a high traffic area and generates plenty of business without advertising. Customers are required to pay cash; no checks or credit cards are accepted. DDS does not "hold" items; everything is sold on a first come-first served basis.
Required:
Create a value system level REA model for Daisy's Dollar Store