Question 1

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. The nonvalue-added costs are
A) £16.
B) £32.
C) £48.
D) £-0-.

Accepted Answer

The nonvalue-added costs are the costs incurred in the current production process that could be eliminated if the new, more efficient process were implemented. In this case, the current process takes 6 hours to produce the product, but the time-and-motion study revealed that it should only take 2 hours. The difference between these two times (4 hours) represents the nonvalue-added costs.

Nonvalue-added costs = 4 hours x £8 per hour = £32.

Therefore, the best choice is B.

Question 2

Which of the following is NOT 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 enables other activities to be performed
D) All of the above are necessary conditions.

Accepted Answer

A change of state is necessary for an activity to add value. Choices B and C are also necessary conditions for classification as a value-added activity. Therefore, only choice A is not a necessary condition.

Question 3

____ is an effort to reduce costs of existing products and processes.
A) Kaizen costing
B) Activity elimination
C) Activity selection
D) Activity reduction

Accepted Answer

Kaizen costing is an approach to continuous improvement that focuses on reducing costs of existing products and processes. It involves constant review and analysis of processes and products to identify areas where costs can be streamlined or eliminated. Activity elimination, selection, and reduction are all associated with process improvement, but do not necessarily focus specifically on cost reduction.

Question 4

____ is the process of identifying, describing, and evaluating the activities an organization performs.
A) Activity inputs
B) Activity analysis
C) Cost driver analysis
D) Value-added activities

Accepted Answer

Activity analysis is the process of identifying, describing, and evaluating the activities an organization performs. This includes analyzing the inputs, processes, and outputs of each activity to determine their value and cost-effectiveness. Cost driver analysis and value-added activities are related concepts, but they focus on specific aspects of the activities identified in activity analysis.

Question 5

Figure 21-1
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 Figure 21-1. The value-added costs are
A) £80,000.
B) £40,000.
C) £20,000.
D) £-0-.

Accepted Answer

Value-added costs refer to the costs that add value to a product or service, such as materials, labor, and overhead that contribute directly to the finished product. The carrying costs of inventory, which are costs associated with holding or storing inventory before it is sold, do not add value to the product itself. Therefore, regardless of the difference in inventory levels and carrying costs between the company and its competitor, the value-added costs from carrying inventory are £0 because carrying costs are considered non-value-added costs.

Question 6

Which of the following is a value-added activity?
A) moving
B) inspection
C) processing
D) waiting

Accepted Answer

Processing is a value-added activity, as it directly transforms raw materials or inputs into finished goods or outputs. Moving, inspection, and waiting, however, are not value-added activities, as they do not add value to the final product or service. Moving refers to the physical transport of materials or goods, which may be necessary but does not change the product. Inspection is important for quality control but does not change the product itself, and waiting is a non-value added activity that creates only idle time.

Question 7

____ focuses on nonvalue-added activities.
A) Activity sharing
B) Activity elimination
C) Activity selection
D) Activity reduction

Accepted Answer

Activity elimination focuses on identifying and eliminating nonvalue-added activities, which are activities that do not add value to the final product or service. Activity sharing focuses on sharing activities between different processes or departments to achieve optimal efficiency. Activity selection involves choosing the most efficient and effective activities to achieve a desired outcome. Activity reduction involves reducing the amount of time or resources spent on an activity, but does not necessarily eliminate it entirely.

Question 8

Which of the following process dimensions of the activity-based management model deals with "why"?
A) resources
B) cost driver analysis
C) activities
D) performance measures

Accepted Answer

Cost driver analysis deals with understanding the factors that cause costs to change, essentially addressing the "why" behind the costs.

Question 9

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) All are value-added activities.

Accepted Answer

Supervision of production workers is considered a value-added activity because it directly contributes to the efficiency and quality of the production process, enhancing the value of the final product.

Question 10

Which of the following process dimensions of the activity-based management model deals with "what"?
A) resources
B) cost driver analysis
C) activities
D) performance measures

Accepted Answer

The process dimension of "activities" deals with what specific tasks or processes are being performed within the organization. Resources refer to the inputs required for performing the activities, cost driver analysis focuses on determining the factors that drive costs, and performance measures track the effectiveness of the activities and how well they contribute to achieving overall goals.

Question 11

Which of the following is NOT an expected outcome of activity analysis?
A) What activities are performed?
B) How many people perform the activities?
C) The time and resources required to perform the activities.
D) All of the above are expected outcomes.

Accepted Answer

All of the options listed (A, B, and C) are expected outcomes of activity analysis.

Question 12

Which of the following process dimensions of the activity-based management model deals with "how well"?
A) resources
B) cost driver analysis
C) activities
D) performance measures

Accepted Answer

Performance measures in the activity-based management model deal with evaluating "how well" a process is performing. Resources refer to the inputs required for the process, cost driver analysis focuses on identifying the factors that drive costs in the process, and activities describe the tasks required to complete the process.

Question 13

Which of the following is an example of a nonvalue-added manufacturing activity?
A) assembly
B) scheduling
C) finishing
D) All are value-added activities.

Accepted Answer

Scheduling is a necessary activity for manufacturing, but it does not directly add value to the product being created. The other choices, assembly and finishing, are both value-added activities because they directly contribute to the final product.

Question 14

Figure 21-2
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.
-Refer to Figure 21-2. The nonvalue-added costs are
A) £100,000.
B) £10,000.
C) £5,000.
D) £250.

Accepted Answer

The nonvalue-added costs are the carrying costs of the inventory, which is £5,000 per day x 20 days = £100,000.

Question 15

Figure 21-1
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 Figure 21-1. The nonvalue-added costs for the company are
A) £80,000.
B) £40,000.
C) £20,000.
D) £-0-.

Accepted Answer

The nonvalue-added costs for the company are the extra costs it incurs over what the competitor incurs for holding inventory. The company holds 10 more days of inventory than the competitor (20 days - 10 days) at a cost of £4,000 per day, resulting in £40,000 of additional carrying costs. However, since the competitor also incurs £2,000 per day for their 10 days of inventory, the total nonvalue-added cost is not just the difference in the additional days but the entire cost of holding those extra days at £4,000 per day. Thus, the nonvalue-added costs are £4,000 * 20 days = £80,000, as this is the extra cost the company incurs beyond the efficient level of inventory costs represented by the competitor.

Question 16

The major source of information for the activity cost management system is
A) cost driver analysis.
B) an activity- based costing system.
C) a performance measurement system.
D) product information.

Accepted Answer

The major source of information for the activity cost management system is an activity-based costing system, which provides detailed information on the cost of each activity and helps identify cost drivers. Other sources of information, such as performance measurement systems and product information, may be useful in certain contexts, but do not provide the same level of detail and insight into activity costs.

Question 17

Which of the following focuses on the relationship of activity inputs to activity outputs?
A) activity reduction
B) quality
C) time
D) efficiency

Accepted Answer

Efficiency focuses on how much output is achieved with a given amount of input, making it the best choice. Activity reduction, quality, and time are all important factors in business management, but they do not directly relate to the relationship of activity inputs to activity outputs.

Question 18

Figure 21-1
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 Figure 21-2. The value-added costs would be
A) £100,000.
B) £10,000.
C) £5,000.
D) £-0-.

Accepted Answer

Value-added costs are those that customers are willing to pay for because they add to the value of the product or service. Keeping inventory on hand is a non-value-added activity, as it does not directly add value to the product from the customer's perspective. Therefore, the value-added costs in this scenario would be £0.

Question 19

Which of the following is a reason for managerial activity to be considered a value-added activity?
A) It is an enabling resource for operational activities that bring about a change of state.
B) Managing activities brings order by changing the state from uncoordinated activities to coordinated activities.
C) Both are reasons for classifying managerial activities as value-added activity.
D) Neither is a reason for classifying managerial activities as value-added activity.

Accepted Answer

Both options A and B are valid reasons for considering managerial activity as value-added. Management activities provide resources that enable operational activities to bring about change, and they also bring order by coordinating efforts towards a common goal. Therefore, both options are correct, and the best choice is C.

Question 20

____ are those activities necessary to remain in business.
A) Activity inputs
B) Activity outputs
C) Activity drivers
D) Value-added activities

Accepted Answer

The answer of ____ are those activities necessary to remain...

Quiz 21: Cost Management

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. The nonvalue-added costs are

Which of the following is NOT a necessary condition for classification as a value-added activity?

____ is an effort to reduce costs of existing products and processes.

____ is the process of identifying, describing, and evaluating the activities an organization performs.

Which of the following is a value-added activity?

____ focuses on nonvalue-added activities.

Which of the following process dimensions of the activity-based management model deals with "why"?

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

Which of the following process dimensions of the activity-based management model deals with "what"?

Which of the following is NOT an expected outcome of activity analysis?

Which of the following process dimensions of the activity-based management model deals with "how well"?

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

Figure 21-2 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. -Refer to Figure 21-2. The nonvalue-added costs are

The major source of information for the activity cost management system is

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

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

____ are those activities necessary to remain in business.