Cost Accounting Systems

(D. Product Quality and Productivity/ Total Quality Management)

C. the same output is produced with fewer inputs.

D. Product Quality and Productivity/ Total Quality Management D. laborers put in more effort.

THEORY 7. A partial productivity measure has several limitations, including that:

Productivity Measures A. it ignores any productivity effect caused by other manufacturing factor quantity changes.
1. A primary objective in measuring productivity is to improve operations either by using fewer B. it ignores any effect that changes in the production factor have on productivity.
inputs to produce the same output, or to produce: C. it ignores and effect that changes in operating characteristics of the firm may have on the
A. more effectively C. more outputs with the same inputs productivity of the input resource.
B. with fewer constraints D. more outputs with more inputs D. all of the above answers are correct.

2. Which of the following assesses the productivity efficiency for all inputs combined in order to 8. An advantage of partial measures of productivity is that it:
value change in productivity? A. allows managers to focus on the use of a particular input.
A. partial productivity measurement C. profit-linked productivity measurement B. is a complex measure that is difficult to interpret by everyone in the organization.
B. profile productivity measurement D. total productivity measurement C. looks at the effect of multiple inputs.
D. is a perfect measure of performance.
3. Changes in the productivity of different types of resources are NOT always:
A. measurable and observable Total quality management
B. in the same direction or at an equal pace 9. Characteristics of total quality management include:
C. unique and differentiated A. focusing on customer satisfaction
D. simultaneous and positive B. striving on continuous improvement
C. involvement of the entire work force
4. How can productivity be improved? D. All of the above are characteristics of TQM
A. using less input to produce the same output
B. using the same input to produce more output 10. Which of the following is not an important principle of TQM?
C. improve input trade-off efficiency by using a less costly mix of inputs A. The organization should focus on improving goods from the consumer's viewpoint
D. all of the above B. Everyone in the organization is required to participate
C. There should be a system of planning, controlling, and decision making
5. One major problem in measuring productivity in not-for-profit organizations is the absence of D. Complacency is the norm
revenue as the:
A. common measure for inputs 11. Total quality management directs management attention to the relationship between the
B. common measure for outputs internal production/service process and the:
C. basis for financial reporting A. CEO of the competition C. activity analysis
D. common denominator with commercial firms B. ultimate customer D. control charts

6. Productivity increases if: 12. Continuous improvement is synonymous with:

A. less output is produced with more input. A. process benchmarking C. management by objectives
B. the same output is produced with more input. B. total quality management D. management by exception

57
 Cost Accounting Systems
(D. Product Quality and Productivity/ Total Quality Management)

Value chain
13. Which of the following describes the zero defects view? 19. Which of the following is the correct sequence of the value chain?
A. it permits a predetermined level of defective units to be produced A. design, research and development, production, supply, marketing, customer service,
B. it is the level where the number of defects allowed minimizes total cost. distribution
C. it is the level where there are no defects. B. research and development, design, supply, production, marketing, distribution, customer
D. all of the above. service
C. research and development, design, supply, production, marketing, customer service,
Statistical process control distribution
14. A technique by which companies analyze fluctuations in a process is called: D. supply, research and development, design, production, marketing, distribution, customer
A. statistical process control C. benchmarking service
B. a quality audit D. Pareto analysis
Process value analysis
Process benchmarking 20. A tool that focuses on manufacturing processes and seeks to reduce or optimize the activities
15. Focusing on how best in class companies achieve their results is referred to as: performed within the process is
A. reverse engineering C. process benchmarking A. process value analysis C. caveat analysis
B. results benchmarking D. competitive benchmarking B. re-engineering D. benchmarking

Total quality control 21. A tool that compares how tasks are performed internally with the best practices of industry
16. The goal of total quality control is leaders is
A. to have less defective material than good material A. process value analysis C. caveat analysis
B . to permit defects as long as they do not exceed a certain level B. re-engineering D. benchmarking
C. to have zero defect
D. both b and c 22. Attempting to determine why activities are performed and how well they are performed is a
goal of
Cost of Quality Report A. process value analysis
17. Regardless of the differences in form and control, a common feature that should be present in B. both traditional and activity-based costing systems
any Cost of Quality Report is that the report: C. computer-integrated manufacturing systems
A. promotes total quality management (TQM) D. just-in-time manufacturing
B. stratifies costs by product line
C. stratifies costs by plant Process Re-engineering
D. stratifies costs by division 23. An approach to developing new ways to perform existing activities is called
A. process value analysis C. caveat analysis
Value Engineering B. re-engineering D. benchmarking
18. Value engineering can result in
A. product redesign C. modifications in process methods 24. A danger in Process Reengineering is that:
B. changes in materials specifications D. all of the above A. non-value-9added activities may be eliminated.
B. some resources may no longer be required.

58
 Cost Accounting Systems
(D. Product Quality and Productivity/ Total Quality Management)

C. employee morale may suffer. D. inspecting products during production

D. all of the above.
32. Sales returns and allowances due to a quality deficiency is an example of:
Quality Costs A. external failure costs C. internal failure costs
Prevention cost B. appraisal costs D. prevention cost
25. Costs incurred to improve product quality by precluding product defects are known as:
A. internal failure costs C. appraisal costs Analysis
B. external failure costs D. prevention cost 33. If a company has high failure costs, the best course of action to reduce total quality costs
would be to increase
26. Worker training is a(n) A. prevention costs C. the cost of non-compliance
A. appraisal cost. C. internal failure cost. B. the costs associated with compliance D. appraisal costs
B. external failure cost. D. prevention cost.
Value-added & non-value added costs
27. An example of a control cost is: Non-value added costs
A. supplier evaluation and selection C. cost of recalling products 34. The costs caused by inefficiency in prevention activities are:
B. scrap D. all of the above A. nonvalued-added costs
B. value-added costs
Appraisal cost C. neither nonvalued-added or value-added costs
28. The quality costs that are incurred to determine whether particular units of product meet D. both nonvalued-added or value-added costs
quality standards are
A. appraisal costs. C. internal failure costs. PROBLEMS
B. external failure costs. D. prevention costs. Productivity Ratios
i
. Jetters Company manufactured 100,000 motors for dehumidifiers and used 20,000 direct labor
Internal failure cost hours. The selling price of each motor is P25 and the labor cost is P10 per hour. The labor
29. The cost of downtime on machines while rework is being performed is a(n) productivity ratio is:
A. appraisal cost. C. internal failure cost. A. P10 C. 4 motors per hour
B. external failure cost. D. prevention cost. B. P12.50 D. 2.5 motors per hour

30. The costs of reworking defective units to make them saleable are classified as Productivity-linked increase in gross profit
ii
A. appraisal costs C. internal failure costs . At the end of 2006, Duabi Corporation implemented a new labor process and
B. external failure costs D. prevention costs redesigned its product with the expectation that input usage efficiency would
increase. Now, at the end of 2007, the president of the company wants an assessment
External failure cost of the changes on the company's productivity. The data needed for the assessment are
31. Which of the following represents an external failure cost? as follows:
A. reprocessing a defective product before shipment 2006 2007
B. replacing a defective product after shipment Output 30,000 38,000
C. hiring for quality Output prices P12 P12

59
 Cost Accounting Systems
(D. Product Quality and Productivity/ Total Quality Management)

Materials (lbs.) 10,000 10,400 Warranty repairs 50,000

Materials unit price P8 P7 Total quality costs P293,000
Labor hours 14,000 15,000
Labor rate per hour P6 P7 Sales for 2005 were P1,000,000
Power (KwH) 12,000 13,000
Price per KwH P3 P4 iv
. What is the amount of appraisal costs?
By how much did profits change as a result of productivity changes in materials? A. P60,000 C. P32,500
A. P 13,000 decrease C. P 23,400 decrease B. P92,500 D. P75,000
B. P 15,870 increase D. P 20,800 increase
v
. What is the amount of external failure costs?
Price-recovery component A. P35,000 C. P50,000
iii
. At the end of 2006, Alban Company implemented a new labor process and B. P85,000 D. P67,500
redesigned its product with the expectation that input usage efficiency would
vi
increase. Now, at the end of 2007, the president of the company wants an assessment . If Kurt Company is able to reduce quality costs to 2.5 percent of sales, what will happen to
of the changes on the company's productivity. The data needed for the assessment are profits?
as follows: A. Decrease by P25,000 C. Decrease by P293,000
2006 2007 B. Increase by P268,000 D. Increase by P25,000
Output 10,000 12,000
Output prices P10 P10 ANSWER EXPLANATIONS
Change in profits P10,700
Profit-linked measurements:
Materials P4,600
Labor 3,250
Power (250)
Net P7,600
How much is the price-recovery component?
A. P 3,100 C. P10,700
B. P( 1,350) D. P 7,600

Use the following information to answer questions 39 through 41:

Testing P 60,000
Rework 27,500
Training 45,000
Product liability insurance 35,000
Quality planning 43,000
Customer surveys 15,000
Reinspection and retesting 17,500

60
i
. Answer: B
Labor productivity ratios are operational measure (100,000/20,000 = 5 motors per hour) or financial measure [(25 *
100,000)/(20,000 * 10) = P12.50).
ii
. Answer: B
Material productivity ratio, 2006: (30,000 ÷ 10,000) 3
Actual materials (lbs), 2007 10,400
Required lbs. based on 2006: (38,000 ÷ 3) 12,667
Savings in number of pounds 2,267
Material productivity-linked to profit: (2,267 x P7) P15,870
iii
. Answer: A
Price recovery component:
Change in Profits: P10,700
Deduct profit-linked productivity change 7,600
Price recovery component P 3,100
iv
. Answer: D
Testing P60,000
Customer surveys 15,000
Total appraisal costs P75,000
v
. Answer: B
Product liability insurance P35,000
Warranty repairs 50,000
Total external costs P85,000
vi
. Answer: B
Current quality costs P293,000
Less proposed quality costs: (0.025 x P1M) 25,000
Cost savings (increase in profits) P268,000