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ANSWER:
2.
an ordering cost.
a carrying cost.
a purchasing cost.
a cost of not carrying goods in stock.
ANSWER:
EASY
EOQ
ABC
push
pull
ANSWER:
4.
EASY
3.
EASY
ANSWER:
MEDIUM
161
162
5.
Chapter 16
EDI
EOQ
JIT
ABC
ANSWER:
6.
EASY
ANSWER:
EASY
JIT.
push inventory systems.
EOQ.
ABC.
ANSWER:
9.
EASY
a companys vendors.
employees.
inspection of finished goods inventory.
a good product warranty.
ANSWER:
8.
7.
EASY
when to do something.
how to do something.
where to do something.
how much of something should be done.
ANSWER:
EASY
Chapter 16
10.
When JIT is implemented, which of the following changes in the accounting system would
not be expected?
a.
b.
c.
d.
ANSWER:
11.
MEDIUM
EOQ systems.
push systems in general.
JIT.
pull systems in general.
ANSWER:
EASY
ANSWER:
13.
Striving for flexibility in the number of products that can be produced in a short period of
time is characteristic of
a.
b.
c.
d.
12.
163
EASY
ANSWER:
EASY
164
14.
Chapter 16
ANSWER:
15.
MEDIUM
ANSWER:
EASY
With JIT manufacturing, which of the following costs would be considered a direct
product cost?
a.
b.
c.
d.
ANSWER:
17.
With JIT manufacturing, which of the following costs would be considered an indirect
product cost?
a.
b.
c.
d.
16.
MEDIUM
ANSWER:
EASY
Chapter 16
18.
The JIT environment has caused a reassessment of product costing techniques. Which of
the following statements is true with respect to this reassessment?
a.
b.
c.
d.
Traditional cost allocations based on direct labor are being questioned and
criticized.
The federal government, through the SEC, is responsible for the reassessment.
The reassessment is caused by the replacement of machine hours with labor hours.
None of the above is true.
ANSWER:
19.
b.
c.
d.
MEDIUM
employees are retrained on different equipment, but the plant layout generally
remains unchanged.
new machinery and equipment must be purchased from franchised JIT dealers.
machinery and equipment are moved into small autonomous production lines
called islands or cells.
new, more efficient machinery and equipment are purchased and installed in the
original plant layout.
ANSWER:
MEDIUM
Which of the following describes the effect on direct labor when management adopts the
JIT philosophy?
a.
b.
c.
d.
Each direct labor person performs a single task, thereby allowing that person to
reach his or her theoretical potential.
Because each person runs a single machine in a JIT environment, there are more
employees classified as direct labor.
The environment becomes more labor-intensive.
Machine operators are expected to run several different types of machines, help set
up for production runs, and identify and repair machinery needing maintenance.
ANSWER:
21.
20.
165
MEDIUM
JIT concepts
a.
b.
c.
d.
ANSWER:
EASY
166
22.
Chapter 16
ANSWER:
23.
MEDIUM
ANSWER:
MEDIUM
ANSWER:
25.
24.
MEDIUM
ANSWER:
EASY
Chapter 16
26.
JIT.
EOQ.
ABC.
CPM.
ANSWER:
27.
EASY
ANSWER:
MEDIUM
ANSWER:
29.
28.
167
EASY
In a production cell,
a.
b.
c.
d.
ANSWER:
MEDIUM
168
30.
Chapter 16
U-shaped groupings of workers and machines that improve materials handling and flow
are known as
a.
b.
c.
d.
manufacturing cells.
efficiency stations.
multi-flow modules.
productivity islands.
ANSWER:
31.
EASY
More flexibility
no
no
yes
yes
ANSWER:
EASY
The process of _________ occurs when equipment is programmed to stop when a certain
situation arises.
a.
b.
c.
d.
throughput
automation
backflushing
information sharing
ANSWER:
33.
32.
EASY
The connection of two or more flexible manufacturing systems via a host computer and a
networking information system is known as
a.
b.
c.
d.
computer integrated
manufacturing
yes
yes
no
no
ANSWER:
EASY
electronic data
interchange
yes
no
no
yes
Chapter 16
34.
ANSWER:
35.
Standard costs
yes
no
yes
no
ANSWER:
ANSWER:
37.
EASY
36.
EASY
ANSWER:
EASY
169
1610
38.
Chapter 16
Kaizen means
a.
b.
c.
d.
ANSWER:
39.
EASY
The peak level of unit sales will occur in which stage of the product life cycle?
a.
b.
c.
d.
growth
maturity
decline
introduction
ANSWER:
EASY
expensed as incurred.
capitalized and allocated over the life cycle.
deducted as period costs.
charged to specific departments as incurred.
ANSWER:
42.
EASY
target costing.
product life cycle costing.
activity-based costing.
responsibility costing.
ANSWER:
41.
The process that determines an allowable product cost while setting market price and
allowing for an acceptable profit margin is known as
a.
b.
c.
d.
40.
EASY
ANSWER:
EASY
Chapter 16
43.
ANSWER:
44.
EASY
30%
50%
70%
90%
ANSWER:
EASY
ANSWER:
46.
45.
1611
EASY
In which of the following stages of the product life cycle would operating losses not be
expected?
a.
b.
c.
d.
growth
development
introduction
decline
ANSWER:
EASY
1612
47.
Chapter 16
During which stage of the product life cycle will a company witness the highest profit?
a.
b.
c.
d.
development
maturity
growth
decline
ANSWER:
48.
EASY
design specifications
manufacturing processes
impact on product costs when different inputs resources are used
all of the above
ANSWER:
EASY
Ongoing efforts to reduce costs, increase product quality, and/or improve production
process once manufacturing has begun is known as
a.
b.
c.
d.
cost management.
kaizen costing.
target costing.
life-cycle costing.
ANSWER:
50.
Cost tables are databases that provide information on which of the following?
a.
b.
c.
d.
49.
EASY
New products
yes
no
no
yes
ANSWER:
Existing products
yes
yes
no
no
EASY
Chapter 16
51.
A mandate to reduce costs, increase product quality, and/or improve production processes
through continuous improvement is known as
a.
b.
c.
d.
kaizen costing.
activity-based costing.
the theory of constraints.
mass customization.
ANSWER:
52.
EASY
ANSWER:
EASY
The projected sales price for a new product (which is still in the development stage of the
product life cycle) is $50. The company has estimated the life-cycle cost to be $30 and the
first-year cost to be $60. On this type of product, the company requires a $12 per unit
profit. What is the target cost of the new product?
a.
b.
c.
d.
$60
$30
$38
$42
ANSWER:
54.
If life-cycle costs exceed the target cost of a product, managers will strive to reduce
a.
b.
c.
d.
53.
1613
EASY
ANSWER:
EASY
1614
55.
Chapter 16
product flow.
the number of defective products.
the influence of constraints on production flow.
the critical path time.
ANSWER:
56.
MEDIUM
precede bottlenecks.
follow bottlenecks.
be placed at the end of all production processes.
be placed at random points in the manufacturing process.
ANSWER:
EASY
The flow of goods through a production process cannot be at a faster rate than the slowest
bottleneck is the definition for
a.
b.
c.
d.
mass customization.
business process reengineering.
the theory of constraints.
the Pareto principle.
ANSWER:
58.
57.
EASY
Bottlenecks are
a.
b.
c.
d.
ANSWER:
EASY
Chapter 16
59.
an intermediate inventory.
always off the critical path.
a capacity constraint.
related to a non-value-adding activity.
ANSWER:
60.
EASY
Period-by-period basis
yes
yes
no
no
ANSWER:
Life-cycle basis
yes
no
yes
no
EASY
Which approaches to costing should be associated with each of the following life-cycle
stages?
a.
b.
c.
d.
Development
Kaizen
Target
Target
Kaizen
ANSWER:
62.
61.
1615
Introduction
Target
Standard
Kaizen
Standard
Maturity
Standard
Kaizen
Standard
Target
MEDIUM
In the introduction stage of a product's life-cycle, which of the following type of costs
typically may create losses rather than profits?
a.
b.
c.
d.
advertising
assembly
design
overhead
ANSWER:
MEDIUM
1616
63.
Chapter 16
Most studies have indicated that what percent of a product's total life-cycle costs are
determined in the development/design stage?
a.
b.
c.
d.
60%70%
70%80%
80%90%
90%95%
ANSWER:
64.
EASY
kaizen costing
target costing
standard costing
process costing
ANSWER:
MEDIUM
Which of the following formulas is the best representation of the concept of target
costing?
a.
b.
c.
d.
ANSWER:
66.
Which of the following costing methods is the most effective in controlling a product's
total life-cycle cost?
a.
b.
c.
d.
65.
EASY
kaizen costing.
value engineering.
kanban implementation.
all of the above.
ANSWER:
MEDIUM
Chapter 16
67.
ANSWER:
68.
DIFFICULT
ANSWER:
MEDIUM
ANSWER:
70.
Target costing
a.
b.
c.
d.
69.
1617
DIFFICULT
In which life-cycle stage are product quality improvements and stable selling prices likely
to occur?
a.
b.
c.
d.
introduction
growth
maturity
decline
ANSWER:
MEDIUM
1618
71.
Chapter 16
a life-cycle investment
a period expense.
an unearned revenue.
a risk reserve.
ANSWER:
72.
Computers
yes
no
yes
yes
ANSWER:
MEDIUM
Furniture
yes
yes
no
no
Textbooks
yes
yes
no
yes
Automobiles
yes
no
yes
yes
MEDIUM
production.
just-in-time.
card.
target costing.
ANSWER:
74.
73.
EASY
JIT seeks to
a.
b.
c.
d.
ANSWER:
DIFFICULT
Chapter 16
75.
The JIT philosophy indicates that inventory, as well as which of the following, should be
eliminated?
a.
b.
c.
d.
Suppliers
yes
yes
no
no
ANSWER:
76.
Employees
yes
no
yes
no
MEDIUM
ANSWER:
MEDIUM
ANSWER:
78.
Storage
yes
yes
no
yes
Business-ValueAdded Activities
yes
no
no
yes
77.
1619
MEDIUM
an autonomation.
a bottleneck.
a push inventory system.
the need for third-party logistics.
ANSWER:
EASY
1620
79.
Chapter 16
ANSWER:
80.
EASY
backflush costing.
design for manufacturability.
just-in-time redesign.
continuous improvement.
ANSWER:
MEDIUM
(Appendix) The Whitehead Co. produces quality jewelry items for various retailers. For
the coming year, it has estimated it will consume 500 ounces of gold. Its carrying costs for
a year are $2 per ounce. No safety stock is maintained. If the EOQ is 100 ounces, what is
the cost per order?
a.
b.
c.
d.
$40
$20
$5
$25
ANSWER:
82.
MEDIUM
(Appendix) The Whitehead Co. produces quality jewelry items for various retailers. For
the coming year, it has estimated it will consume 500 ounces of gold. Its carrying costs for
a year are $2 per ounce. No safety stock is maintained. If the EOQ is 100 ounces, what
would be the estimate for Whiteheads total carrying costs for the coming year?
a.
b.
c.
d.
$200
$250
$100
$1,000
ANSWER:
MEDIUM
Chapter 16
83.
(Appendix) A firm estimates that its annual carrying cost for material X is $.30 per lb. If
the firm requires 50,000 lbs. per year, and ordering costs are $100 per order, what is the
EOQ (rounded to the nearest pound)?
a.
b.
c.
d.
5,774 lbs.
4,082 lbs.
1,732 lbs.
1,225 lbs.
ANSWER:
84.
MEDIUM
(Appendix) Z Corp.s EOQ for Material A is 500 units. This EOQ is based on:
Annual demand
Ordering costs
5,000 units
$12.50
$0.50
$2.00
$2.50
$5.00
ANSWER:
85.
1621
MEDIUM
(Appendix) Z Corp.s EOQ for Material A is 500 units. This EOQ is based on:
Annual demand
Ordering costs
5,000 units
$12.50
$6,000
$600
$125
$1,000
ANSWER:
MEDIUM
1622
86.
Chapter 16
(Appendix) Clear View Co. manufactures various glass products including a car window.
The setup cost to produce the car window is $1,200. The cost to carry a window in
inventory is $3 per year. Annual demand for the car window is 12,000 units. What is the
most economical production run (rounded to the nearest unit)?
a.
b.
c.
d.
6,000 units
3,000 units
9,295 units
3,098 units
ANSWER:
87.
MEDIUM
(Appendix) Clear View Co. manufactures various glass products including a car window.
The setup cost to produce the car window is $1,200. The cost to carry a window in
inventory is $3 per year. Annual demand for the car window is 12,000 units. If the annual
demand for the car window was to increase to 15,000 units,
a.
b.
c.
d.
ANSWER:
88.
EASY
(Appendix) A company has estimated its economic order quantity for Part A at 2,400 units
for the coming year. If ordering costs are $200 and carrying costs are $.50 per unit per
year, what is the estimated total annual usage?
a.
b.
c.
d.
6,000 units
28,800 units
7,200 units
2,400 units
ANSWER:
MEDIUM
Chapter 16
89.
(Appendix) A company annually consumes 10,000 units of Part C. The carrying cost of
this part is $2 per year and the ordering costs are $100. The company uses an order
quantity of 500 units. By how much could the company reduce its total costs if it
purchased the economic order quantity instead of 500 units?
a.
b.
c.
d.
$500
$2,000
$2,500
$0
ANSWER:
90.
MEDIUM
250 units
1,000 units
500 units
2,000 units
ANSWER:
MEDIUM
ANSWER:
92.
(Appendix) A company annually consumes 10,000 units of Part C. The carrying cost of
this part is $2 per year and the ordering costs are $100. The company uses an order
quantity of 500 units. If the company operates 200 days per year, and the lead time for
ordering Part C is 5 days, what is the order point?
a.
b.
c.
d.
91.
1623
EASY
daily usage
lead time
safety stock
all of the above
ANSWER:
EASY
1624
93.
Chapter 16
order point.
safety stock.
economic order quantity.
ordering costs.
ANSWER:
94.
EASY
order point/2.
order point 2.
economic order quantity/2.
economic order quantity 2.
ANSWER:
EASY
ANSWER:
97.
EASY
cost of a stockout.
probability of a stockout.
carrying cost of stock.
economic order quantity.
ANSWER:
96.
(Appendix) The size of the safety stock is directly affected by all of the following, except
the
a.
b.
c.
d.
95.
EASY
(Appendix) The optimal size of the safety stock is defined by the point where the
a.
b.
c.
d.
ANSWER:
MEDIUM
Chapter 16
98.
(Appendix) If a company carries safety stock and its annual carrying costs per unit are
$0.30, what formula yields the total annual carrying costs?
a.
b.
c.
d.
ANSWER:
99.
EASY
10,000 gallons
38,000 gallons
48,000 gallons
58,000 gallons
ANSWER:
MEDIUM
(Appendix) Blanchard Corp. operates its factory 300 days per year. Its annual
consumption of Material Y is 1,200,000 gallons. It carries a 10,000 gallon safety stock of
Material Y and its lead time is 12 business days. If the EOQ for Material Y is 30,000
gallons, and the carrying cost per gallon per year is $.25, what is the total annual carrying
cost for Material Y?
a.
b.
c.
d.
$3,750
$7,500
$6,250
$10,000
ANSWER:
101.
(Appendix) Blanchard Corp. operates its factory 300 days per year. Its annual
consumption of Material Y is 1,200,000 gallons. It carries a 10,000 gallon safety stock of
Material Y and its lead time is 12 business days. What is the order point for Material Y?
a.
b.
c.
d.
100.
1625
MEDIUM
(Appendix) Blanchard Corp. consumes 1,200,000 gallons of Material Y per year. Its order
quantity is 30,000 gallons. It maintains a safety stock of 10,000 gallons and its annual
carrying costs are $0.25 per gallon per year. If the ordering cost is $20 per order, what are
the total annual ordering costs?
a.
b.
c.
d.
$600
$800
$8,300
$1,200
ANSWER:
MEDIUM
1626
102.
Chapter 16
(Appendix) R Corp.s order quantity for Material T is 5,000 lbs. If the company maintains
a safety stock of T at 500 lbs., and its order point is 1,500 lbs., what is the lead time
assuming daily usage is 50 lbs.?
a.
b.
c.
d.
30 days
100 days
10 days
20 days
ANSWER:
103.
MEDIUM
$1,000
$600
$100
$1,100
ANSWER:
MEDIUM
(Appendix) For Raw Material B, a company maintains a safety stock of 5,000 pounds. Its
average inventory (taking into account the safety stock) is 8,000 pounds. What is the
apparent order quantity?
a.
b.
c.
d.
16,000 lbs.
6,000 lbs.
10,000 lbs.
21,000 lbs.
ANSWER:
105.
(Appendix) R Corp.s order quantity for Material T is 5,000 lbs. If the company maintains
a safety stock of T at 500 lbs., and its order point is 1,500 lbs., what would be the total
annual carrying costs assuming the carrying cost per unit is $0.20?
a.
b.
c.
d.
104.
MEDIUM
(Appendix) In an ABC inventory analysis, the items that are most likely to be controlled
with a red-line system are the
a.
b.
c.
d.
A items.
B items.
C items.
items on a perpetual inventory.
ANSWER:
EASY
Chapter 16
106.
(Appendix) Which of the following might be appropriate for items in the C category of
an ABC inventory analysis?
a.
b.
c.
d.
a red-line system
a two-bin system
a periodic inventory system
all of the above
ANSWER:
107.
MEDIUM
(Appendix) All other factors equal, a decrease in the order quantity will
a.
b.
c.
d.
ANSWER:
EASY
ANSWER:
110.
MEDIUM
ANSWER:
109.
(Appendix) The __________________ would not affect the economic order quantity.
a.
b.
c.
d.
108.
1627
EASY
ANSWER:
MEDIUM
1628
111.
Chapter 16
(Appendix) The number of orders that will be submitted each year for raw material is
given by which formula?
a.
b.
c.
d.
ANSWER:
112.
EASY
ANSWER:
MEDIUM
SHORT ANSWER/PROBLEMS
1.
Why may a JIT control system be useful in disclosing a firms inefficiencies and problems?
ANSWER:
The JIT control system is based on a philosophy that inventory is
undesirable. Subscribers to the JIT philosophy believe inventory reductions expose
organizational problems and inefficiencies. These problems and inefficiencies may not be
brought to managements attention if inventories are not pushed to lower and lower levels.
They would remain hidden and undetectable at higher levels of inventory.
MEDIUM
2.
Chapter 16
3.
1629
Why does a push based inventory control system generate larger inventory levels than a
pull system?
ANSWER:
Larger levels of inventory exist by design in push production control
systems. The inventory buffers permit lower levels of communication between business
segments, permit longer production runs, and protect the firm from environmental
uncertainties and unforeseen interruptions in production or supplies.
MEDIUM
4.
What does the term pull mean in the context of production control?
ANSWER:
Pull simply refers to the fact that the pace and level of production are
geared to product demand. Each work center sets the pace for the next upstream work
center. Customer demand paces the final downstream work center.
MEDIUM
5.
Why might it be necessary to make adjustments to the accounting system in a firm that
adopts JIT?
ANSWER:
JIT production control systems foster automation and reduced levels of
inventory. Consequently, raw material inventories and direct labor costs may be too small
to warrant separate cost poolsthey can be combined with other cost pools.
Additional adjustments may be necessary to accommodate standard costs, which are
constantly adjusted to reflect the latest technological changes in production methods. Also,
more costs could be traced to specific products and fewer costs would have to be
allocated.
MEDIUM
6.
What is the relationship between warehouse space and the length of production runs?
ANSWER: Longer production runs increase the levels of specific inventories. To
accommodate long production runs, significant warehouse space needs to be available for
storing intermediate and final products.
MEDIUM
1630
7.
Chapter 16
8.
Bell Company estimates that it will consume 400,000 units of Part A in the coming year.
The ordering cost for this unit is $3.20. What would be the carrying costs per unit if the
EOQ model indicates that it is optimal to place exactly 50 orders for the upcoming year?
ANSWER:
If projected usage for the year is 400,000 units, the EOQ would be 8,000
units (400,000/50). To determine the carrying costs per unit, the following equation is
solved:
8,000 = [( 2 400,000 $3.20 / CC] , where CC is the carrying cost per unit.
Solving the equation, CC = $0.04 per unit.
MEDIUM
9.
Bell Company estimates that it will consume 400,000 units of Part A in the coming year.
The ordering cost for this unit is $3.20. Bell Company wants to maintain a safety stock of
1,000 units, and its factory operates 200 days per year. What is the order point if the lead
time is 2 days?
ANSWER:
The order point = (daily usage lead time) + safety stock daily usage =
400,000/200 = 2,000; lead time = 2 days, safety stock = 1,000
Order point = (2,000 2) + 1,000 = 5,000 units
MEDIUM
10.
How does adopting a JIT system affect the firms relationship with suppliers and how must
suppliers change their way of doing business?
Chapter 16
1631
ANSWER:
The JIT manufacturer will limit the number of suppliers to a few. Longterm contracts are entered into with suppliers. Suppliers raw material must be top quality
with no defects.
Small quantities of raw material are delivered frequently and little or no raw material is
maintained by the buyer.
Suppliers must be located close enough to the JIT buyer to deliver small quantities very
quickly. The supplier must agree to providing a top-quality product to its JIT customer.
MEDIUM
11.
Identify and discuss how sales and costs are affected during the five stages of the product
life cycle.
ANSWER:
The five stages of the product life cycle are (1) development, (2) introduction, (3) growth, (4) maturity, and (5) decline. In the development stage, no
production costs or sales exist, but R & D costs are extremely high. During the
introduction stage low unit sales exist while high advertising costs are evident. The growth
stage sees increasing unit sales and decreasing production costs per unit. The maturity
stage witnesses peak unit sales and a stabilization of production costs per unit. During the
decline stage unit sales decrease while production costs per unit increase.
MEDIUM
12.
Discuss differences in approach and potential usage between target and kaizen costing.
ANSWER:
Target costing is considered a procedural approach that is used to
determine a maximum allowable cost for a product, while kaizen costing is a mandate to
reduce costs, increase product quality, and/or improve production process through
continuous improvement. Target costing has a large potential for cost reduction in lifelong product cost because these costs are embedded in the product during design and
development. Kaizen costing has limited potential in cost reduction of existing products,
but may be useful in target costing in the future.
MEDIUM