Act Help.
Chapter 4
Activity-Based Costing, Lean Operations, and the Costs of Quality
Part I- Introduction
1. What two business conditions led to the need for better product cost information?
2. What makes a refined cost allocation system different from a traditional one?
3. In addition to providing more accurate costs, how can refined costing systems help management?
Part II- Why and how do companies refine their cost allocation systems? (LO 1 and LO 2)
4. As demonstrated by the roommate example, what is often the problem with simple allocation systems?
5. What is cost distortion and what causes it?
6. When a company uses a plantwide overhead rate, which jobs get allocated MOH using the plantwide rate?
7. What two conditions often lead to cost distortion if a plantwide rate is used?
i.
ii.
8. Why does Condition 1 exist for the company example in the text?
9. Why does Condition 2 exist for the company example in the text?
10. One way to fine-tune a cost allocation system is by using _________________________ _______________________________rather than a single plantwide rate. How many of these rates are established?_________________________________________________
11. The first step is to estimate the total ___________________ associated with _________ ________________________. What are these costs often referred to as? ___________ ______________________________________.
12. What does a company do if some of the MOH costs, such as property taxes, relate to the entire plant rather than specific departments?
13. The second step is to select an _____________________________ for each _________ and estimate ___________________________________that will be used during the year.
14. What should be used as the allocation base?____________________. Give examples for a heavily automated machining department (example: ___________________________) and an assembly department: (example:______________________________).
15. Are the allocation bases always the same for each department? YES or NO
16. Step 3 uses the information from Steps 1 and 2 to calculate a _____________________ ______________________________ for each department.
17. When are the first three steps performed? ____________________________ What data is used?____________________________________________________________.
18. The fourth step is to _______________________________________________from ____________________________________to _______________________________ that ______________________________________________ using the following procedure:
19. Allocating MOH using departmental overhead rates rather than a plantwide rate, results in a more accurate allocation of MOH to individual jobs because….
20. Are departments always based on production processes? Explain the implications for the accounting system.
21. When a company uses ABC to refine its costing system, _________________ become the building blocks for allocating indirect costs. ABC causes the least amount of cost distortion because it allocates indirect costs based on
i.
ii.
22. How does the four-step process differ when ABC is used?
23. What are the costs in Step 1 often referred to as?________________________________
24. List some examples of typical activities in a manufacturing plant.
25. When choosing allocation bases for each activity, the company should think about the following two things:
i.
ii.
26. When are the first three steps performed?
27. How is the fourth step performed?
28. Which of the 3 methods (plantwide vs. departmental vs. ABC) is generally thought to be the most accurate? (circle)
29. When we look at all of the jobs produced throughout the year, we know that if some have been overcosted, than others have been __________________. Briefly explain why this is the case:
30. At yearend, in total, will MOH still be overallocated or underallocated?__________ Why? What needs to be done?
31. Why are refined costing systems almost a necessity for companies that wish to be more sustainable? Give a few examples of environmental MOH costs that may not be shared equally among all products:
32. How does the cost hierarchy help managers?
33. Activities and costs incurred for every unit are called___________________________.
34. _____________________________________ are activities and costs incurred for every _____________ regardless of the number of units in the _______________.
35. ______________________________________are activities and costs incurred for every ___________________regardless of the number of units or batches.
36. ______________________________________are activities and costs incurred for the company or plant as a whole, regardless of the number of units, batches or products. Rather than dividing these costs among the different activity cost pools, what is sometimes done with these costs?
37. When a manufacturer uses departmental rates or ABC, do the journal entries differ in any way from those that are used when a single plantwide rate is used for MOH allocation? Explain.
Part III- How do managers use the refined cost information to improve operations? (LO3)
38. How does ABC information help with pricing and product mix decisions?
39. How does ABC information help managers cut costs?
40. _____________________________________ are activities that basically waste money rather than improve the product or service offered by the company, whereas customers are willing to pay for the ____________________________that take place.
41. What’s a good way to determine if an activity is a wasteful activity or one that adds value?
42. How can companies use ABC in addition to using it to allocate MOH?
43. When merchandising and service companies use ABC, they use it to allocate ____________________________________.
44. How did the City of Indianapolis use ABC?
45. List two situations in which the benefits of adopting ABC/ABM are higher:
46. List two signs that would lead you to believe the company’s product costing system probably needs to be refined.
Part IV- What is lean thinking? (LO 4)
47. What is the general idea behind lean thinking?
48. What are two of the main benefits of successfully applying lean thinking?
49. What are the 8 wastes? Use the DOWNTIME acronym to briefly describe why each one is wasteful.
D=
O=
W=
N=
T=
I=
M=
E=
50. List 3 reasons inventory is considered wasteful:
51. What is JIT and what waste does it focus on eliminating?
52. What does value stream mapping illustrate?
53. Describe how self-contained work cells differ from a traditional plant layout.
54. List three ways employees are more empowered and/or motivated at companies that embrace lean thinking:
55. What is the essence of 5s? What do the 5 S’s stand for?
56. What does careful monitoring of takt time help companies do?
57. How does a pull system differ from a traditional push system?
58. List a few tactics used by manufacturers that make a pull system feasible.
59. Why are small batch sizes critical?
60. How do shorter set-up times aid the company?
61. How does POUS differ from raw material storage at traditional plants?
62. Describe how “quality at source,” works. What does “quality at source” help to prevent?
63. Briefly describe the goal of Six Sigma and the goal of Poka-yoke.
64. Why is attention to supply chain management crucial?
65. What is the goal of backflush costing?
66. Are there any risks associated with lean operations?
67. What types of companies use lean thinking?
68. How does “lean and green” thinking differ from “lean thinking”?
Part V- How do managers improve quality? (LO 5)
69. What is TQM?
70. List, briefly describe, and give an example of each of the four costs of quality:
1.
2.
3.
4.
71. Conformance costs include ___________________________________ and ________________________________ while non-conformance costs include ___________________________________ and ________________________.
72. Companies are generally better off to spend more on _____________________ costs, especially in the ______________ and ________________ functions of the value chain in order to reduce the other costs of quality.
73. What types of companies incur the four costs of quality?
74. What kind of information do costs of quality reports usually include?
75. Before embarking on a quality initiative, the company will prepare a _______________ analysis to determine if the initiative makes financial sense.
76. What cost should be included in the “external failure” category even though it is more of a subjective estimate?