Question 1

Assume that a company spends $15,000 a year for inspecting, $45,000 for purchasing, and $26,000 for reworking products.A good estimate of nonvalue-added costs would be:
A) $60,000.
B) $41,000.
C) $71,000.
D) $45,000.
E) $26,000.

Accepted Answer

Inspecting and reworking are generally nonvalue-added activities.
Therefore, a good estimate of nonvalue-added costs would be:
$15,000 + $26,000 = $41,000.

Question 2

A manual process takes 20 minutes of direct labor time and 8 pounds of material to produce a product.Automating the process requires 16 minutes of machine time and 6 pounds of material.The cost per labor hour is $10, the cost per machine hour is $8, and the cost per pound of materials is $12. Find the nonvalue-added cost for the given situation.(Note: Round all calculations and the answer to two decimal places.)
A) $22.40 per unit
B) $9.00 per unit
C) $25.20 per unit
D) $1.70 per unit

Accepted Answer

The nonvalue-added cost is the difference between the cost of manual process and the cost of the cheaper automated process.
Cost of manual process = [(Direct labor time × Cost per labor hour) + (Materials used to produce product × Cost per pound of materials)] = [(20 minutes / 60 minutes) × $10] + (8 pounds × $12)] = $99.33
Cost of automated process = [(Machine time × Cost per machine hour) + (Materials used to produce product × Cost per pound of materials)] = [(16 minutes / 60 minutes) × $8] + [(6 pounds × $12] = $74.13
Nonvalue-added cost = (Cost of manual process ? Cost of automated process) = ($99.33 ? $74.13) = $25.20

Question 3

____ is concerned with identifying the root causes of activity costs.
A) Direct analysis
B) Activity analysis
C) Driver analysis
D) Causal analysis
E) None of these.

Accepted Answer

Driver analysis is concerned with identifying the root causes of activity costs by examining the factors that drive these costs.

Question 4

A product currently requires 6 moves.By changing the plant layout, the number of moves can be reduced to 2.The cost per move is $40.Calculate the reduction in the nonvalue-added cost of the moving activity.
A) $7
B) $30
C) $0
D) $160
E) $150

Accepted Answer

Reduction in nonvalue-added cost of moving activity = (Number of moves prior to change in plant layout - Number of moves after change in plant layout) × Cost per move
(6 moves - 2 moves ) × $40 = $160

Question 5

The process of decreasing the time and resources required by an activity is known as
A) activity reduction.
B) activity output measure.
C) activity attributes.
D) activity analysis.

Accepted Answer

Activity reduction specifically refers to the process of decreasing the time and resources required by an activity, aiming to make it more efficient.

Question 6

Assume that a company takes 10,000 hours to produce 50,000 units of a product.What is the velocity for the company?
A) 1 unit per hour
B) 3.5 units per hour
C) 2 units per hour
D) 5 units per hour
E) 2.5 units per hour

Accepted Answer

Velocity = Units Produced / Time
Velocity = 50,000 units / 10,000 hours = 5 units per hour

Question 7

Which of the following is not an example of a nonvalue-added activity?
A) Storing
B) Reporting defects
C) Handling customer complaints
D) Waiting
E) Supervising production workers

Accepted Answer

Supervising production workers is considered a value-added activity because it directly contributes to the quality and efficiency of the production process, ensuring that products are made correctly and efficiently. The other options (storing, reporting defects, handling customer complaints, and waiting) are typically considered nonvalue-added activities as they do not directly add value to the product or service from the customer's perspective.

Question 8

Which of the following is not one of the three conditions necessary to be classified as a discretionary activity?
A) the activity produces a change of state
B) the change of state was not achievable by preceding activities
C) the activity enables other activities to be performed
D) the activity increases efficiency

Accepted Answer

Discretionary activities are defined by their ability to produce a change of state (A), the uniqueness of the change they produce compared to preceding activities (B), and their role in enabling other activities (C). Increasing efficiency (D) is not a necessary condition for an activity to be classified as discretionary.

Question 9

The identification and elimination of activities that fail to add value refers to
A) external failures.
B) activity reduction.
C) internal failures.
D) activity elimination.

Accepted Answer

The identification and elimination of activities that fail to add value is known as activity elimination. It involves identifying non-essential or redundant activities and removing them from the process to increase efficiency and productivity. It does not refer to external or internal failures, and activity reduction may not necessarily eliminate non-value adding activities.

Question 10

____ activities are unnecessary activities.
A) Frivolous
B) Nonvalue-added
C) Expensive
D) Under-performing
E) None of these.

Accepted Answer

Nonvalue-added activities are those that do not add value to the end product or service and can be considered unnecessary. Frivolous activities may not necessarily be unnecessary in a business context as they may contribute to employee morale or team building. Expensive and under-performing activities may be necessary but need to be addressed and improved rather than eliminated altogether.

Question 11

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 involves identifying and eliminating unnecessary activities, increasing the efficiency of necessary activities, and adding new activities that increase value. Therefore, option D is the best choice.

Question 12

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

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

Question 13

Assume that a company takes 4,500 hours to produce 15,000 units of a product.What is the cycle time for the company? (Note: Round answer to two decimal places.)
A) 0.45 hours per unit
B) 1.50 hours per unit
C) 0.50 hours per unit
D) 3.50 hours per unit
E) 0.30 hours per unit

Accepted Answer

Cycle Time = Time / Units Produced
Cycle Time = 4,500 hours / 15,000 units = 0.30 hours per unit

Question 14

With its original design, a machine requires 14 hours of setup time.By redesigning the machine, the setup time is reduced by 30%.The cost per setup hour is $325.Calculate the reduction in the nonvalue-added cost per setup.
A) $1,365 per setup
B) $1,225 per setup
C) $450 per setup
D) $800 per setup
E) $2,025 per setup

Accepted Answer

Reduction in nonvalue-added cost per setup = (Original setup time × Reduction percentage in setup time) × Cost per setup hour
(14 hours × 0.30) × $325 = $1,365 per setup

Question 15

____ 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 is concerned with doing the activity right the first time it is performed. Time and velocity are concerned with speed, while efficiency is concerned with achieving a goal with minimal waste.

Question 16

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

Complying with the filing requirements of the IRS is mandatory, and failing to do so can result in penalties and legal consequences. Therefore, it is a required activity.

Question 17

Increasing the efficiency of necessary activities by using economies of scale is known as
A) activity inputs.
B) activity sharing.
C) control activities.
D) cycle time.

Accepted Answer

Activity sharing involves combining similar activities to increase efficiency and reduce costs through economies of scale. Activity inputs refer to the resources required to perform an activity, control activities involve monitoring and managing processes, and cycle time is the length of time it takes to complete a process.

Question 18

____ 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 19

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

See Text Cornerstone 5.7: Determine the value content of each activity: Is the activity nonvalue-added or value-added? Performing warranty work is nonvalue-added.Thus, the nonvalue-added cost of performing warranty work is $60,000.The cost of the competitor is also nonvalue-added and has no bearing on the analysis.Root causes for warranty work are defective products.Purchasing components is necessary so that materials are available to produce products and, thus, is value-added.However, the activity is not performed efficiently as revealed by the benchmarking study.The nonvalue-added cost is $45,000 ($100,000 - $55,000).

Question 20

The process of choosing among different sets of activities caused by competing strategies refers to
A) activity drivers.
B) activity inputs.
C) activity outputs.
D) activity selection.

Accepted Answer

The process of choosing among different sets of activities caused by competing strategies refers to activity selection. This involves selecting the most appropriate activities to carry out to achieve the organization's goals and objectives. Activity drivers refer to the factors that influence the level of activity in a particular activity, while activity inputs and outputs refer to the resources and products of an activity.

Quiz 5: Activity-Based Costing and Management

Assume that a company spends $15,000 a year for inspecting, $45,000 for purchasing, and $26,000 for reworking products.A good estimate of nonvalue-added costs would be:

____ is concerned with identifying the root causes of activity costs.

A product currently requires 6 moves.By changing the plant layout, the number of moves can be reduced to 2.The cost per move is $40.Calculate the reduction in the nonvalue-added cost of the moving activity.

The process of decreasing the time and resources required by an activity is known as

Assume that a company takes 10,000 hours to produce 50,000 units of a product.What is the velocity for the company?

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

Which of the following is not one of the three conditions necessary to be classified as a discretionary activity?

The identification and elimination of activities that fail to add value refers to

____ activities are unnecessary activities.

Activity-based management attempts to

Which is not a component of process value analysis?

Assume that a company takes 4,500 hours to produce 15,000 units of a product.What is the cycle time for the company? (Note: Round answer to two decimal places.)

With its original design, a machine requires 14 hours of setup time.By redesigning the machine, the setup time is reduced by 30%.The cost per setup hour is $325.Calculate the reduction in the nonvalue-added cost per setup.

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

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

Increasing the efficiency of necessary activities by using economies of scale is known as

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

The process of choosing among different sets of activities caused by competing strategies refers to