IPFC Academy Pvt Ltd
Homework #18: Part I: Sec D: Cost Management - 7
Cost of Quality, Value analysis, TOC, Business Processes
1. Presario Inc. recently installed just-in-time production and purchasing systems. If Presario’s
experience is similar to that of other companies, Presario will likely
a. reduce the number of suppliers with which it does business.
b. increase the size of individual orders of raw materials.
c. increase the dollar investment in finished goods inventory.
d. be less reliant on sales orders as a “trigger” mechanism for production runs.
You have answered D which is Wrong
Correct answer a. The use of just-in-time production generally involves developing relationships with
a minimum number of suppliers that reliably deliver high quality products.
2. According to the theory of constraints, all of the following activities help to relieve the problem
of a bottleneck in operations except
a. eliminating idle time at the bottleneck operation.
b. reducing setup time at the bottleneck operation.
c. shifting products that do not have to be made on bottleneck machines to non-bottleneck
machines.
d. increasing the efficiency of operations at non-bottleneck machines.
You have answered C which is Wrong
Correct answer d. According to the theory of constraints, increasing the efficiency of operations at
non-bottleneck machines will make the slowdowns at bottlenecks worse as it will increase the traffic
at bottlenecks.
3. When demand for a product or products exceeds production capacity, which one of the
following is the first step that managers should take?
a. Spend money to eliminate the bottleneck.
b. Focus their efforts on constraint identification.
c. Change the throughput of operations.
d. Apply activity-based management to solve the problem.
You have answered D which is Wrong
Correct answer b. A company must first locate the source of the production constraint
before it can effectively work to increase production capacity.
4. A company desires to prepare two sets of financial statements. Conventional financial
statements would be prepared along with a set that is totally consistent with value-chain
analysis. How would customer service costs be treated in the two statements?
Conventional Financial Statements Value-Chain Financial Statements
a. Inventoriable cost Product cost.
b. Inventoriable cost Non-product cost.
c. Noninventoriable cost Product cost.
d. Noninventoriable cost Non-product cost.
You have answered C which is Correct!
Correct answer c. In conventional financial statements, customer service costs are generally part of
sales and administrative costs and not associated with a product. In value-chain statements, customer
service is treated as part of the value chain and therefore associated with product cost.
5. Which one of the following lists of functions is in proper value chain order?
a. Research and development, marketing, and customer services.
b. Production, marketing, and production design.
c. Production design, distribution, and marketing.
d. Research and development, customer service, and distribution.
You have answered A which is Correct!
Correct answer a. In option A, the functions are in the proper order while in the other
options the functions are out of order, e.g., in option B, production design must precede
production.
6. Consider the following manufacturing-related activities.
I. Conducting the final assembly of wooden furniture.
II. Moving completed production to the finished goods warehouse.
III. Painting newly-manufactured automobiles.
IV. Setting up a machine related to a new production run.
V. Reworking defective goods to bring them up to quality standards.
The activities that would be classified as value-added activities are
a. II, III, IV, and V only.
b. I, IV, and V only.
c. I, III, and V only.
d. I and III only.
You have answered D which is Correct!
Correct answer d. Activities I and III are the only activities that actually increase the value of
the product and would, therefore, be classified as value-added activities.
7. From the perspective of the management accountant, which one of the following represents a
major disadvantage of business process reengineering?
a. The focus is, to a large extent, on short-term results.
b. It often results in a decreased use of centralized data bases.
c. Internal control mechanisms are often disassembled.
d. It results in heavier maintenance for legacy systems.
You have answered A which is Wrong
Correct answer c. A major disadvantage of business process reengineering is that as
processes are changed to be more efficient, the internal controls that were established
previously can be ignored or overlooked and may not be replaced with new controls.
8. All of the following are examples of benchmarking standards except
a. the performance of the unit during the previous year.
b. the best performance of the unit in comparable past periods.
c. a comparison with a similar unit within the same company.
d. the best performance of a competitor with a similar operation.
You have answered B which is Wrong
Correct answer a. Option A does not compare the business unit to any other standard, e.g., best
practice, and is not an example of benchmarking standards.
9. Leese Inc. has the following quality financial data for its most recent fiscal year.
Rework costs $110,000
Warranty repair costs 280,000
Product line inspection 95,000
Design engineering 300,000
Supplier evaluation 240,000
Labor training 150,000
Product testing 65,000
Breakdown maintenance 70,000
Product scrap 195,000
Cost of returned goods 180,000
Customer support 35,000
Product liability claims 80,000
The total amount of prevention costs that should be reported in a Cost of Quality report for the
year is
a. $390,000.
b. $450,000.
c. $690,000.
d. $755,000.
You have answered C which is Correct!
Correct answer c. Prevention costs include Design Engineering ($300,000), Supplier
Evaluation ($240,000), and Labor Training ($150,000) for a total of $690,000. All of these
activities would likely take place prior to production to improve quality and prevent costly
errors.
10. When measuring the cost of quality, the cost of inspecting incoming raw materials is a(n)
a. prevention cost.
b. appraisal cost.
c. internal failure cost.
d. external failure cost.
You have answered A which is Wrong
Correct answer b. Appraisal costs are incurred to detect individual units that do not conform to
specifications, e.g., inspecting raw materials.
Summary of Performance in this Homework
Percentage score: 40
Remarks :Average, Give your best to improve from here.Significant weakness noticed
Take appropriate corrective actions based on the feedback. A student who attends all classes, all
homework and all mocks and scores just 30/35% on an average, will move to the 4th hour of the
exam with 95% probability. Those who receive low score, should think that they have got a chance to
become strong and use their time to remain focused towards the learning objectives. They may have
to give some more time for the whiteboard and excel sheet revisions - which is the basic building
block.
Regards,
Sushanta Bala
