Cost Accounting Systems

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

C. the same output is produced with fewer inputs.

D. laborers put in more effort.

D. Product Quality and Productivity/ Total Quality Management

THEORY
Productivity Measures
1. A primary objective in measuring productivity is to improve operations either by using fewer
inputs to produce the same output, or to produce:
A. more effectively
C. more outputs with the same inputs
B. with fewer constraints
D. more outputs with more inputs

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

A. it ignores any productivity effect caused by other manufacturing factor quantity changes.
B. it ignores any effect that changes in the production factor have on productivity.
C. it ignores and effect that changes in operating characteristics of the firm may have on the
productivity of the input resource.
D. all of the above answers are correct.

2. Which of the following assesses the productivity efficiency for all inputs combined in order to
value change in productivity?
A. partial productivity measurement
C. profit-linked productivity measurement
B. profile productivity measurement
D. total productivity measurement

8. An advantage of partial measures of productivity is that it:

A. allows managers to focus on the use of a particular input.
B. is a complex measure that is difficult to interpret by everyone in the organization.
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
B. in the same direction or at an equal pace
C. unique and differentiated
D. simultaneous and positive

Total quality management

9. Characteristics of total quality management include:
A. focusing on customer satisfaction
B. striving on continuous improvement
C. involvement of the entire work force
D. All of the above are characteristics of TQM

4. How can productivity be improved?

A. using less input to produce the same output
B. using the same input to produce more output
C. improve input trade-off efficiency by using a less costly mix of inputs
D. all of the above

10. Which of the following is not an important principle of TQM?

A. The organization should focus on improving goods from the consumer's viewpoint
B. Everyone in the organization is required to participate
C. There should be a system of planning, controlling, and decision making
D. Complacency is the norm

5. One major problem in measuring productivity in not-for-profit organizations is the absence of

revenue as the:
A. common measure for inputs
B. common measure for outputs
C. basis for financial reporting
D. common denominator with commercial firms

11. Total quality management directs management attention to the relationship between the
internal production/service process and the:
A. CEO of the competition
C. activity analysis
B. ultimate customer
D. control charts

6. Productivity increases if:

A. less output is produced with more input.
B. the same output is produced with more input.

12. Continuous improvement is synonymous with:

A. process benchmarking
C. management by objectives
B. total quality management
D. management by exception
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(D. Product Quality and Productivity/ Total Quality Management)

Value chain
19. Which of the following is the correct sequence of the value chain?
A. design, research and development, production, supply, marketing, customer service,
distribution
B. research and development, design, supply, production, marketing, distribution, customer
service
C. research and development, design, supply, production, marketing, customer service,
distribution
D. supply, research and development, design, production, marketing, distribution, customer
service

13. Which of the following describes the zero defects view?

A. it permits a predetermined level of defective units to be produced
B. it is the level where the number of defects allowed minimizes total cost.
C. it is the level where there are no defects.
D. all of the above.
Statistical process control
14. A technique by which companies analyze fluctuations in a process is called:
A. statistical process control
C. benchmarking
B. a quality audit
D. Pareto analysis

Process value analysis

20. A tool that focuses on manufacturing processes and seeks to reduce or optimize the activities
performed within the process is
A. process value analysis
C. caveat analysis
B. re-engineering
D. benchmarking

Process benchmarking
15. Focusing on how best in class companies achieve their results is referred to as:
A. reverse engineering
C. process benchmarking
B. results benchmarking
D. competitive benchmarking
Total quality control
16. The goal of total quality control is
A. to have less defective material than good material
B . to permit defects as long as they do not exceed a certain level
C. to have zero defect
D. both b and c

21. A tool that compares how tasks are performed internally with the best practices of industry
leaders is
A. process value analysis
C. caveat analysis
B. re-engineering
D. benchmarking
22. Attempting to determine why activities are performed and how well they are performed is a
goal of
A. process value analysis
B. both traditional and activity-based costing systems
C. computer-integrated manufacturing systems
D. just-in-time manufacturing

Cost of Quality Report

17. Regardless of the differences in form and control, a common feature that should be present in
any Cost of Quality Report is that the report:
A. promotes total quality management (TQM)
B. stratifies costs by product line
C. stratifies costs by plant
D. stratifies costs by division
Value Engineering
18. Value engineering can result in
A. product redesign
B. changes in materials specifications

Process Re-engineering
23. An approach to developing new ways to perform existing activities is called
A. process value analysis
C. caveat analysis
B. re-engineering
D. benchmarking

C. modifications in process methods

D. all of the above

24. A danger in Process Reengineering is that:

A. non-value-9added activities may be eliminated.
B. some resources may no longer be required.
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(D. Product Quality and Productivity/ Total Quality Management)

C. employee morale may suffer.

D. all of the above.

D. inspecting products during production

32. Sales returns and allowances due to a quality deficiency is an example of:
A. external failure costs
C. internal failure costs
B. appraisal costs
D. prevention cost

Quality Costs
Prevention cost
25. Costs incurred to improve product quality by precluding product defects are known as:
A. internal failure costs
C. appraisal costs
B. external failure costs
D. prevention cost
26. Worker training is a(n)
A. appraisal cost.
B. external failure cost.
27. An example of a control cost is:
A. supplier evaluation and selection
B. scrap

Analysis
33. If a company has high failure costs, the best course of action to reduce total quality costs
would be to increase
A. prevention costs
C. the cost of non-compliance
B. the costs associated with compliance
D. appraisal costs

C. internal failure cost.

D. prevention cost.

Value-added & non-value added costs

Non-value added costs
34. The costs caused by inefficiency in prevention activities are:
A. nonvalued-added costs
B. value-added costs
C. neither nonvalued-added or value-added costs
D. both nonvalued-added or value-added costs

C. cost of recalling products

D. all of the above

Appraisal cost
28. The quality costs that are incurred to determine whether particular units of product meet
quality standards are
A. appraisal costs.
C. internal failure costs.
B. external failure costs.
D. prevention costs.

PROBLEMS
Productivity Ratios
i
. Jetters Company manufactured 100,000 motors for dehumidifiers and used 20,000 direct labor
hours. The selling price of each motor is P25 and the labor cost is P10 per hour. The labor
productivity ratio is:
A. P10
C. 4 motors per hour
B. P12.50
D. 2.5 motors per hour

Internal failure cost

29. The cost of downtime on machines while rework is being performed is a(n)
A. appraisal cost.
C. internal failure cost.
B. external failure cost.
D. prevention cost.
30. The costs of reworking defective units to make them saleable are classified as
A. appraisal costs
C. internal failure costs
B. external failure costs
D. prevention costs

Productivity-linked increase in gross profit

ii
. At the end of 2006, Duabi Corporation implemented a new labor process and 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 of the changes on the company's
productivity. The data needed for the assessment are as follows:
2006
2007
Output
30,000
38,000
Output prices
P12
P12
Materials (lbs.)
10,000
10,400

External failure cost

31. Which of the following represents an external failure cost?
A. reprocessing a defective product before shipment
B. replacing a defective product after shipment
C. hiring for quality
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Cost Accounting Systems

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

Materials unit price

P8
P7
Labor hours
14,000
15,000
Labor rate per hour
P6
P7
Power (KwH)
12,000
13,000
Price per KwH
P3
P4
By how much did profits change as a result of productivity changes in materials?
A. P 13,000 decrease
C. P 23,400 decrease
B. P 15,870 increase
D. P 20,800 increase

Warranty repairs
Total quality costs
Sales for 2005 were P1,000,000
iv

Price-recovery component
iii
. At the end of 2006, Alban Company implemented a new labor process and 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 of the changes on the company's
productivity. The data needed for the assessment are as follows:
2006
2007
Output
10,000
12,000
Output prices
P10
P10
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
Rework
Training
Product liability insurance
Quality planning
Customer surveys
Reinspection and retesting

50,000
P293,000

vi

What is the amount of appraisal costs?

A. P60,000
B. P92,500

C. P32,500
D. P75,000

What is the amount of external failure costs?

A. P35,000
B. P85,000

C. P50,000
D. P67,500

If Kurt Company is able to reduce quality costs to 2.5 percent of sales, what will happen to
profits?
A. Decrease by P25,000
C. Decrease by P293,000
B. Increase by P268,000
D. Increase by P25,000

ANSWER EXPLANATIONS

P 60,000
27,500
45,000
35,000
43,000
15,000
17,500
60

. 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:
Deduct profit-linked productivity change
Price recovery component

iv

vi

P10,700
7,600
P 3,100

Answer: D
Testing
Customer surveys
Total appraisal costs

P60,000
15,000
P75,000

Answer: B
Product liability insurance
Warranty repairs
Total external costs

P35,000
50,000
P85,000

Answer: B
Current quality costs
Less proposed quality costs: (0.025 x P1M)
Cost savings (increase in profits)

P293,000
25,000
P268,000