Deck 5: Cost: The Price of Value Creation

Question 1

Cost is the currency by which the benefits of all of the other value attributes are measured.

Answer 1

True

Question 2

Cost influences profitability directly through the net income calculation via the cost of goods sold.

Answer 2

True

Question 3

Business customers compare the cost of a product or service they are purchasing to its potential for adding value to their product or service.

Answer 3

True

Question 4

Cost savings that are not passed on the customer go directly to profitability.

Question 5

It is becoming more common practice to directly charge customers for costs that used to be considered just a cost of doing business, through the use of surcharges.

Question 6

Average costs typically represent all of the costs associated with a product during a specific period of time.

Question 7

Cleaning chemicals represent an example of a direct cost for a hotel.

Question 8

Measuring and managing costs, as they relate to operations resources, is an important component of decision-making.

Question 9

Operations decisions are frequently motivated by the desire to increase a variance.

Question 10

Cost per unit is more accurately described as average cost per unit.

Question 11

Which of the following statements is not true about costs?

A) Cost is the currency by which the benefits of all of the other value attributes are measured
B) The link between costs and operations comes directly through costs added in processes
C) As costs go up, perceived value drops, and then demand drops, reducing net sales
D) Costs generally play a minor role in customers' perception of value.
E) For the customer, cost is more than merely price

Question 12

Costs can be measured in terms of:

A) Money
B) Time
C) Customer loyalty
D) Flexibility
E) All of the above

Question 13

Costs of resources used in nonproduction elements of a business are referred to as:

A) Expected costs
B) Out-of-pocket costs
C) Period costs
D) Product costs
E) Actual costs

Question 14

Forecasted payments for future resources are known as

A) Expected costs
B) Out-of-pocket costs
C) Period costs
D) Product costs
E) Actual costs

Question 15

Which of the following statements is NOT true with regard to average costs?

A) Average costs represent all of the costs of all resources obtained in a particular period
B) Average costs provide an excellent way to compare current costs with historical costs
C) In many cases, the cost used to make an operation decision is an average cost
D) Average costs can lull a business into ignoring important details
E) None of the above is true

Question 16

Which of the following statements are not true about the value chain?

A) All of the value of a product or service is added in the value chain
B) The value chain is a critical concept when cost implications for operations management are examined
C) The value chain illustrates which aspects of a business add value and which do not
D) The value chain concept provides a stepping-stone to the concept of an activity
E) All of the costs of a product or service are incurred along the value chain

Question 17

Basic units of work which make up processes are known as

A) Value units
B) Activities
C) Cost objects
D) Supply chain links

Question 18

Management accounting systems use _________ as a basis for assigning costs

A) Variances
B) Cost objects
C) Resources
D) Overhead
E) All of the above

Question 19

A cost object can be a:

A) Customer
B) Department
C) Service
D) Product
E) All of the above

Question 20

Which of the following statements are not true about cost objects?

A) A cost object can be a product, customer, service, department, or activity
B) Assigning costs to cost objects can only be done through direct tracing
C) The accurate assignment of costs to cost objects is important to good operations decision making
D) A cost object is an item for which costs are measured and assigned
E) None of the above statements is true.

Question 21

The difference between desired and actual cost is known as:

A) Direct tracing
B) Indirect tracing
C) A variance
D) A standard
E) None of the above

Question 22

Using more sugar than desired in a recipe, with the actual price equal to standard price, would likely result in

A) A usage variance
B) A price Variance
C) A change in the usage standard
D) A change in the price standard
E) None of the above

Question 23

Assigning of the cost of computer programming to a cost object such as the loan-processing department is an example of the use of:

A) Direct tracing
B) Resource drivers
C) Activity drivers
D) Assignment drivers
E) None of the Above

Question 24

Which of the following statements is true about production costs?

A) Production costs are broken down into direct materials, direct labor, and overhead
B) Production costs are those costs associated with selling and administration
C) Cost management systems identify product costs for internal financial reporting
D) Production costs are the same as average cost per unit
E) None of the above are true

Question 25

Which of the following statements is not true about variance analysis?

A) Variance analysis is used to help isolate costs that are not what they should be
B) Almost any type of resource can be analyzed using variance analysis
C) Variance analysis drives many operations actions because it facilitates the control of various contributors of cost
D) Unfavorable variances often provide the catalyst for productivity improvements
E) The actual quantity at the standard price minus the standard quantity at the standard price provides the total variance

Question 26

A generic and frequently used measure of the productivity of resources is the:

A) Cost of goods sold
B) Cost per unit
C) Total cost
D) Variance
E) None of the above

Question 27

Which of the following statements is true?

A) A reduction the cost per unit will result in improved profitability measures
B) A reduction in cost per unit can often be achieved by reducing the number of units produced.
C) A reduction in cost per unit must also reduce total costs
D) Using cost per unit as a measure is an effective way to prevent managers from misrepresenting performance figures
E) None of the above is true

Question 28

Breakeven analysis is used

A) When variance analysis can't be performed
B) As an alternative to direct tracing
C) To decide among alternatives with different fixed and variable costs
D) To decide among alternatives with financial and nonfinancial costs
E) To decide between short-term and long-term cost reduction

Question 29

In breakeven analysis, the reduction of the fixed cost of an alternative, while leaving all other costs of alternatives the same

A) Will make it relatively more attractive at lower volumes of production
B) Will make it relatively less attractive at lower volumes of production
C) Will not change its attractiveness at lower volumes but will make it more expense on a per unit bases
D) Will result in the variable cost increasing because the combination of variable and fixed costs must stay the same.

Question 30

In breakeven analysis, the point of intersection between the cost curves of two alternatives represents

A) The volume at which all costs are minimized
B) The volume at which the cost of the low-cost alternative is minimized
C) The volume at which the cost of the high-cost alternative is minimized
D) The optimal production volume
E) The volume at which the costs of the two alternatives are the same

Question 31

The following information pertains to the costs and usage of leather for the upholstery of a desk chair:
Standard Quantity: 12 sq. ft.
Standard Price: $1.60 per sq. ft.
Actual Quantity: 9 sq. ft
Actual Price: $1.60 per sq. ft
Which of the follow statements are true about the variance?

A) The price variance is 3
B) The usage variance is 0
C) The total variance is -$4.80
D) The Price variance is $4.80
E) None of the above is true

Question 32

The following information pertains to the costs and usage of Tabasco sauce in a restaurant's barbeque sauce recipe: Standard Quantity: 10 bottles
Standard Price: $1.45 per bottle ft.
Actual Quantity: 10 bottles
Actual Price: $1.50 per bottle
Which of the follow statements are NOT true about the variance?

A) The price variance is $.50
B) The usage variance is $.0
C) The total variance is $.50
D) The total cost of a batch is $14.50
E) All of the above are true

Question 33

The following information pertains to the costs and usage of the active ingredient in a pharmaceutical company's painkiller formulation: Standard Quantity: 205 grams
Standard Price: $3.50 per gram
Actual Quantity: 220 grams
Actual Price: $3.70 per gram
Which of the follow statements are NOT true about the variance?

A) The price variance is $44.00
B) The usage variance is $52.50
C) The total variance is $96.50
D) The total cost of a batch is $814.00
E) All of the above are true

Question 34

A local print shop is trying to select the low-cost color printer among two alternatives. Alternative A costs $49,000 and $.14 per page. Alternative B costs $61,000 and $.09 per page. At what volume will the total costs for the two alternatives be the same?

A) 12,000
B) 240,000
C) 677,778
D) 350,000
E) 110,000

Question 35

Richard is attempting to select a photo printer so he can produce high-quality prints of his digital photographs. Printer A costs $190 and toner consumption is estimated to cost $.30 per print. Printer B costs $285 and toner consumption is estimated at $.20 per print. Richard expects to use the printer for one year, at which time he'll probably upgrade to a better one. Which of the following statements is true about the comparison of the two printers?

A) If Richard averages less than 79 prints per month over the next year, Printer A will be cheaper for him.
B) On average, Richard's photos will cost $.50 each no matter which printer he selects.
C) If Richard selects the low-cost printer at a volume of 1000 prints, and actually prints 1200 pictures over . the next year, his total cost will be $485.
D) If Richard expects to print 1200 pictures over the next year, printer A will be cheaper to own.

Question 36

As costs go up, value _____.

Question 37

In many cases, wrong decisions are made because _____ costs are overlooked.

Question 38

Lack of reliability of a new car translates directly into a _____ cost of ownership.

Question 39

_______ costs are cash payments made for resources.

Question 40

A _____ ______ can be a customer, product, service, department, or activity.

Question 41

Two types of drivers that can be used to assign costs to cost objects are ______ and ______.

Question 42

______ and _____ are two costs that often lose in a monetary cost reduction tradeoff because it is extremely difficult to place value on them.

Question 43

Match these items.

-Out-of-pocket costs

A) Measure demands placed on resources by activities
B) Selling and administration
C) Cost of resources used in nonproduction elements of the business
D) Overhead, direct material, and direct labor
E) Generic measure of the productivity of resources purchased
F) Measure the demands that cost objects place on activities
G) Cash payment made for resources
H) Entities that management would want to know the cost of
I) Assigning cost to cost objects
J) Used to help isolate costs that are not what they should be

Question 44

Match these items.

-Resource drivers

A) Measure demands placed on resources by activities
B) Selling and administration
C) Cost of resources used in nonproduction elements of the business
D) Overhead, direct material, and direct labor
E) Generic measure of the productivity of resources purchased
F) Measure the demands that cost objects place on activities
G) Cash payment made for resources
H) Entities that management would want to know the cost of
I) Assigning cost to cost objects
J) Used to help isolate costs that are not what they should be

Question 45

Match these items.

-Production cost

A) Measure demands placed on resources by activities
B) Selling and administration
C) Cost of resources used in nonproduction elements of the business
D) Overhead, direct material, and direct labor
E) Generic measure of the productivity of resources purchased
F) Measure the demands that cost objects place on activities
G) Cash payment made for resources
H) Entities that management would want to know the cost of
I) Assigning cost to cost objects
J) Used to help isolate costs that are not what they should be

Question 46

Match these items.

-Cost traceability

A) Measure demands placed on resources by activities
B) Selling and administration
C) Cost of resources used in nonproduction elements of the business
D) Overhead, direct material, and direct labor
E) Generic measure of the productivity of resources purchased
F) Measure the demands that cost objects place on activities
G) Cash payment made for resources
H) Entities that management would want to know the cost of
I) Assigning cost to cost objects
J) Used to help isolate costs that are not what they should be

Question 47

Match these items.

-Variance analysis

A) Measure demands placed on resources by activities
B) Selling and administration
C) Cost of resources used in nonproduction elements of the business
D) Overhead, direct material, and direct labor
E) Generic measure of the productivity of resources purchased
F) Measure the demands that cost objects place on activities
G) Cash payment made for resources
H) Entities that management would want to know the cost of
I) Assigning cost to cost objects
J) Used to help isolate costs that are not what they should be

Question 48

Match these items.

-Period costs

A) Measure demands placed on resources by activities
B) Selling and administration
C) Cost of resources used in nonproduction elements of the business
D) Overhead, direct material, and direct labor
E) Generic measure of the productivity of resources purchased
F) Measure the demands that cost objects place on activities
G) Cash payment made for resources
H) Entities that management would want to know the cost of
I) Assigning cost to cost objects
J) Used to help isolate costs that are not what they should be

Question 49

Match these items.

-Activity drivers

A) Measure demands placed on resources by activities
B) Selling and administration
C) Cost of resources used in nonproduction elements of the business
D) Overhead, direct material, and direct labor
E) Generic measure of the productivity of resources purchased
F) Measure the demands that cost objects place on activities
G) Cash payment made for resources
H) Entities that management would want to know the cost of
I) Assigning cost to cost objects
J) Used to help isolate costs that are not what they should be

Question 50

Match these items.

-Cost objects

A) Measure demands placed on resources by activities
B) Selling and administration
C) Cost of resources used in nonproduction elements of the business
D) Overhead, direct material, and direct labor
E) Generic measure of the productivity of resources purchased
F) Measure the demands that cost objects place on activities
G) Cash payment made for resources
H) Entities that management would want to know the cost of
I) Assigning cost to cost objects
J) Used to help isolate costs that are not what they should be

Question 51

Match these items.

-Nonproduction costs

A) Measure demands placed on resources by activities
B) Selling and administration
C) Cost of resources used in nonproduction elements of the business
D) Overhead, direct material, and direct labor
E) Generic measure of the productivity of resources purchased
F) Measure the demands that cost objects place on activities
G) Cash payment made for resources
H) Entities that management would want to know the cost of
I) Assigning cost to cost objects
J) Used to help isolate costs that are not what they should be

Question 52

Match these items.

-Cost per unit

A) Measure demands placed on resources by activities
B) Selling and administration
C) Cost of resources used in nonproduction elements of the business
D) Overhead, direct material, and direct labor
E) Generic measure of the productivity of resources purchased
F) Measure the demands that cost objects place on activities
G) Cash payment made for resources
H) Entities that management would want to know the cost of
I) Assigning cost to cost objects
J) Used to help isolate costs that are not what they should be

Question 53

Why is it important for Internet retailers to provide all cost information early to customers?

Question 54

By means of a diagram, briefly discuss a value chain you are familiar with. Why is the value chain a critical concept when cost implications for operations management are examined?

Question 55

Explain how the use of average costs can result in poor decisions.

Question 56

Why are nonfinancial costs often ignored in decision-making?