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CH 03 - Basic Framework

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CH 03 - Basic Framework

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Rafael Bautista
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Chapter 3 — Manager! Accounting: Basic Framewerks & Contemporary Developments 109 MULTIPLE CHOICE: 1. It'is a field of accounting that provides economic and financial information for internal. users, ‘particularly the managers. or decision-makers in an organization a. Managerial accounting —_¢,_ Cost accounting b. Financia! accounting d. Bookkeeping Which of the following statements is/are correct? a. Managers carry out their planning function by mobilizing the organization's resources and overseeing day-to-day operations. b. Managers carry out their decision-making function by obtaining feedback to ensure that the plans are being followed. The planning, ditecting and motivating, and controling functions of a manager are kept separate from such manager's decision-making activities. d, The manager's planning function involves setting of the ‘organization's goals and identifying alternatives and selecting the alternative that best furthers such goals set for the organization. 3. Which of the following is/are false? @. Managerial accounting is as _concemed with providing information to stockholders as itis with providing information to managers. b. Managerial accotinting focuses more on the segments of an organization rather than on the organization as a whole. .. Managerial accounting need not follow the Generally Accepted Accounting Principles (GAAP), d. Managerial accounting is not mandatory, L.e., not required by any external law or regulation, 4, In which of the following aspects is managerial accounting sintilar to financial accounting? ‘a. users of reports b, emphasis between the past and future cc. type of data provided to users : 4. reliance on the accounting database He PART 4 ~ OVERVIEW OF THE MAS PRACTICE BY GPAS Which of the sollowiny describes rnanagement accounting i formation? a. is prepared for sharcholders, d, Its reliable anc verifiable, ©. Itis prepared In accordance with GAAP. planning and decision-making, <. the reports should provide a means fer performance monitoring ara evaluation, ¢. Nove of the above. 7, ‘ihe American Institute of Management Accountants came up with the Standards. of Ethical Conduct for Management Accountants which have four sections, namely 2 competence, confidentiaity, integrity, and objectivity. b competence, security, integrity, and objectivity. S. Sompeterce, confidentiality, integrity, and maturity. 4, competition, confidentiality, integrity, and objectivity. nancial and managerial accounting differ in a number of ways. contract (o financial acoounting, managerial accounting 2, focuses on providing data for external users. . emphasizes relevance and flexibility rather than precision, is mandatary. 1s govemed by Generally Accepted Accounting Principles, iv this section of Ethical Standards for Management require management accountants to develop their and. skils and to.do their tasks in aocordance with lations, and! standards. Integrity * Objectivity Chapter 3 —Managerl Accounting: Basic Frameworks & Contemporary Deveiopments 131 10. ct 12. 13. Provisions in. this. section of Ethical Standards for Management Accountants forbid management accountants to act on, or even ‘appear to act on, confidential information they acquire in doing their work, except when authorized or when legally obligated to do so. ‘a. Competence Integrity b. Confidentiality d. Objectivity Provisions in this Ethical Standards for Management ‘Accountants cover avoidance of conflicts of interest, improprieties of accepting gifts or favors, and other matters generally associated with professional behavior. a. Competence Integrity b. Confidentiality d. Objectivity Per the Standards of Ethical Conduct, the management accountants have a responsibility to communicate information fairly and objectively, and disclose. fully all relevant information that could reasonably be expected to influence an-intended user's, understanding of the ‘reports, comments, and recommendations presented. These provisions are contained in the standards on a. integrity. confidentiality b. objectivity 4d.’ competence, Which of the following statements relating to Standards of Ethical Conduct for Management Accountants is correct? ‘a. A management accountant should refuse all gifts and hospitality offered by one of the company’s suppliers. b. A management accountant should inform his superiors regarding the confidentiality of information acquired in the Course of their work and monitor their activities to assure the maintenance of that confidentiality. ©. A management accountant should prepare complete ‘and lear reports and recommendations before appropriate ‘analyses of relevant and reliable information. d. Management accountants have a responsibilty to disclose fully all relevant. information that could reasonably be expected to influence an intended user's understanding of the reports, comments, and recommendations presented. M2 PART4 ~ OVERVIEW OF THE MAS PRACTICE BY CPAS 14, Management accounting is ued by-a company’s management for ‘a multicuce of purposes which are as follows, except a. assurance of accountability. b. planning. marketing, d. reporting. 15. ‘Management accounting includes the following processes, except 2. measurement, ._ interpretation, b. communication. d. delegation. 16. Managerial accounting differs from financial accounting in that financial accounting is f 2. involved more heavily in decision analysis. i. future oriented. concerned primarily with extemal financial reporting. d. concerned with qualitative information, 17. Controllers are ordinarily concerned with a, investor relations. b. credit extension and coliection of bad debts. short-term financing. d. preparation of tax returns 38. The treasury function includes a. preparation of tax returns. c. reporting to government. b.. cash custody and banking. d. financial reporting. 19. If a management accountent has a problem in resolving an ethical conflict, the first action that should normally be taken is to ‘a. resign from the company. b, notify the police. c. discuss the problem with his/h d._ remain silent. immediate superior. 20, Integrity is an ethical requirement for al! management accountants, ‘One aspect of integrity requites ‘2. maintenance of an appropriate level of professional competence. ‘Chapter 3 — Manageril Accounting: Basic Frameworks 8 Contemporary Oaveopments 113 '. performance of professional duties in accordance with applicable laws. ._ refraining from improper use of confidential information, 4d. avoidance of actual or apparent conficts of interest and advise all appropriate parties of any potential conflict. 21> Statement 1 Managerial contro! and engineering contro! are synonymous, Statement 2. Control from. the viewpoint of management accounting is defined as the process of setting ‘maximum limits on financial expenditures. ‘Statement 1 Statement 2 a true true b. ¢ false false « true false a. false true 22. The basic accounting records that are used to provide data for external financial reports are also employed in management accounting, In combining and reporting these data to management, however, the accountant can relax the verifiabilty constraint necessary in. public financial reporting and. instead prepare data which, although not adequately verifiable for external ‘reporting, are more’ useful to management. This. principle of management accounting considers the following factors are more important than others. a. Verifiabilty, objectivity, and accuracy b. Conservatism c, Relevance, flexibility, and timeliness d. Consistency and disclosure 23. Which of the following statements is false? ‘a, Cost accounting is a tool of both finaricial and managerial accounting, b. Managerial accounting draws heavily. on economics, statistics, operations research, and other disciplines as necessary in providing accounting and financial information. W4 24, 25. PART 4- OVERVIEW OF THE MAS PRACTICE BY CPAS. c. In management accounting, emphatis is given to identifying ‘oF matching costs with functions, projects, oF responsibilities rather than with time periods. d._ Financial accounting provides information to individuals within the business organization, wihile management. accounting provides information to parties outside'the business entity, ‘That type of accounting which deals with how accounting and other financial data can be used for decision-making in controlling, monitoring, and directing business activity is called a. management accounting. c. financial accounting. '. responsibilty eccounting, d. general accounting. In financial accounting, certain rules and regulations must be followed on how financial. statements must be presented to readers. In managerial accounting, no such restrictions generally apply because it is ‘2. an entirely different field that need not observe the broad uidelines in financial accounting. ®. designed to provide management with noninancial information for decision-making. c. designed to provide accounting and other financial data’ to 26. 2. assist management in making business decisions. 4. a discipline that does not require preparation of financial statements. In comparing management and financial accounting, which of the following more accurately describes management accounting information? a. comparable, verifiable, monetary budgeted, informative, adaptable required, estimated, internal d. historical, precise, useful Which of the following statements about management or financial « accounting is faise? ‘a, Management accounting should be flexible, 'b, Financiat accounting must follow GAAP. (Chapter 3 - manage! Accounting: Basic Framewors & Contemporary Developments V1.5 28. 29. 30. 31. 32. Management accounting. is not subject to regulatory reporting standards, d. Both management and financial accounting are subject to ‘mandatory record-keeping requirements. Contemporary management accounting can be characterized by its a. stantardization. precision. b. flexbilty. d. complexity. “Just-in-Time” (JIT) is a system that seeks improvement by . reducing inventories to the absolute minimum levels possible. It means that a. raw materials are purchased just in time to go into production. b. sub-assemblies or component parts’ are completed just -in time the materials needed are purchased, products are completed-just in time an order is received from customers, 4d. None of the above, Jn JIT, the flow of goods is controlled by a “pull” approach. It means that ‘@ Work is initiated only in response to customer orders. b. customers are pulled to buy. more units to reduce the ‘company's inventory. production supervisors see to it that there is ahvays ‘something to'do to keep everyone busy. d. warehouses should always be full to be sure that customer demands are always met. JIT purchasing can be used by a. retailers. c. manufacturers. b. wholesalers. ‘d._ all of the above, ‘Which of the following statements about JIT is true? @ Under IT, partially completed units are pushed from one workstation to another to ensure all workstations have enough work to keep busy. 6 33. 34. 35. PART 4 - OVERVIEW OF THE MAS PRACTICE BY CPAS b, A company will typically have fewer suppliers under JIT than under a conventional! system, . For JIT to operate successfully, all similar pieces of equipment must be grouped together. 4. JIT requires an increase in funds to finance additional inventories. Under 317. 2. work-in-process inventories are maximized in order to ensure that all workstations have enough work to stay busy. 'b. the plant floor is laid out in a functional format with similar machines grouped together. c._ focused factories are used, ._ the piant floor is iaid out in a single flow line through which all products pass. Companies adopt justin-time purchasing systems to reduce camying costs by eliminating inventories and increasing the deliveries made by suppliers. Hence, companies that adopt the system often experience a. less need for linkage with the suppliers’ computerized order entry system. b. fewer deliveries from suppliers. c. a decrease in the number of suppliers. d. a greater need for inspection of goods as the goods are received. . Which of the following is among the benefits of adopting a just-in- time system?” a. Reduction in the number of deliveries of materials. b. Increase in the number of suppliers, c. Performance of non-value added activities, d. Maximization of standard detivery quality, A-company switched from the traditional to the just-in-time system, ‘The change will a. decrease the company’s inventory as a perce assets. b, decrease the company’s inventory turnover Chapter 3 Manager Acouning Basic Framavorts &Conempocay Developments 117, 37, 38. 39, 4. c. increase the company’s inventory as a percentage of total assets, 4. not affect the company's inventory tumover and its inventory a5 a percentage of total assets. ‘The primary objective of just-in-time processing is to a._ identify relevant activity cost drivers. , b. accumulate overhead in activity cost pools, c. identify non-value added activities. d. eliminate or reduce inventories. Ideally, the number of units that should be produced in a just-in- time manufacturing system is equal to a. the maximum productive capacity for the current period. b. actual customer demand for the curfent period. c._ budgeted customer demand for the current period. 4d. budgeted customer demand for the following period, ‘After careful planning, Change Style, Inc. has decided to switch to a just-in-time inventory system effective on July 1 of the current year. ‘As of July 1, the corporation has 70 units of product in inventory.» It has 1,000 labor hours available for the month of July. These hours could produce 250 units of product. Customer demand for July is 200 units. If just-in-time principles are correctly followed, how ‘many units should Change Style Inc. plan to, produce in July? a. 200 180 b. 130 d. 250: It is an approach to continuous improvement that focuses on serving customers and uses front-line workers to identify and solve problems systematically. “a. Total quantity management c. Total quality management b. Just-in-time system dd. ABC system ‘These costs are incurred on quality related processes to prevent defects, or are incurred as a result of defects occurring. a. Standard costs ¢. Cost of serap 7 b. Quality costs d.. Wastage We PART 4 ~ OVERVIEW OF THE MAS PRACTICE BY CPAS. 42, Conformance costs, incurred to keep defective products from faling into the hands of customers, ere composed of 2. prevention and appraisal costs, b, failure eosts, quality costs, ¢._appraisal and inspection costs, 43, Non-conformance costs, which are incurred because defects are produced despite efforts to prevent them, are composed of + a. prevention and appraisal costs. b, Internal and extemal failure costs, costs of technical support given to suppliers. 4d, casts of testing incoming materia. 44. In the traditional quality conirol process in @ manufacturing concer, mass inspection of goods is done only at the end of the Brovess. A mejor deficiency of is process i that itis not 100% effective, ‘mass inspection at the end of the process is very expensive, it does not focus on improving the entire production process. it Is too late and impossible to rework defective items discovered during the inspection. aoge 45. Totai quality management (TQM) is an integrated svstem that identifies customers (internal and external) and establishes their requirements, Accordingly, the externa, or ultimate customer, is best served when intemal customers are also well served. In view of this, the primary purpose for adopting TQM is to achieve greater employee satisfaction, achieve greater customer satisfaction. reduce delivery time, reduce delivery charges. eoge 46, A company wants to be known as a viciid-class manufacturer of quality products, hence, it is willing to spend an quality costs. To achieve this, the company should spend more heavily on a. exiemal failure costs. c. appraisal casts. b. internal fallure costs. prevention casts. Chapter 3 Managerial Accounting: Basic Frameworks & Contomporary Developments 1 19 47. 49, 51. A product-quality-related cost incurred in detecting individual products that do not conform to specifications is an example of a. internal failure costs. c.appraisal costs, b. external failure costs, 4. prevention costs. If a company decides to adopt TQM, its management accountant should, undertake some activities, among which is ‘a, determination of the accounts that are relevant to TQM. b. restructuring of the accounting system to provide accurate quality cost data. ©. application of the ABC system to relate quality. costs to activities. 4 4. All of the above. 3 In a product quality cost system, the cost of statistical. quality control is an example of . ‘noni-conformance cost, _c. internal failure cost. 6. appraisal cost. d. external failure cost, Time management is related to TQM. . For example, product development time is a crucial factor if a company wants to be ‘competitive. If product development time is reduced, the product’s life cycle becomes shorter, which of course is advantageous for the firm. One financial measure of product development is the break- even time, which is a. determined by ‘calculating the time required for the present value of the cumulative cash flows to equal revenues eamned from the product. b. the time from management approval of the project to the time when the cumulative present value of its net cash inflows equals the cumulative present value of the investment cash outflows c._ the point where total sales equals total costs. ._ the point where fixed costs are constant. ‘Ta quality control program, which of the following is/are categorized ‘as external failure costs? 120 PART 4 ~ OVERVIEW OF THE MAS PRACTICE BY CPAS. 1. Rework : 2. Statistical quality control procedures 3. Responding to customer complaints a tonly & 3only b. Zonly d. 1,2,and3 52. Wihich of the four quality costs would be the most damaging to a company’s ability to build a reputation as a world-class manufacturer of quality products? a. Prevention costs Internal faiiure costs b. Appraisal costs d, External failure costs 53. Non-financial performance measures, such as product quality, are Useful to engineering and operations managers for day-to-day control purposes. Which of the following indicators may be used to assess product quality? number and types of customer complaints. 2, production eycle time 3. returns and aliowances a. Land2 only © Zand 3 only b. Land 3only d. 1,2, and3 54. Cycle time is the length of time required for a product to pass completely through @ manufacturing process. It contains four separate elements: processing time, storage and waiting time, Movernent time, and inspection time. . Of these four, value is added to the product during a. processing time. movement time. , storage and waiting time. d, inspection time. 55. A company that adopts TQM will achieve quality more economically if it focuses on 2. prevention costs. c. internal failure costs. b, appraisal costs, d. external failure costs. ‘Chapter & —Manageta Acountg: Basic Famownks & ContireoratyDevetoments 121 56. One of the tenets of TOM is customer orientation. A company that adopts TQM should therefore be customer-centered. For this company, customers are defined as 2. people external to the company who. buy the company’s products/services. b,_ internal customers who are members of the organization who rely for another member's work to accomplish his/her task. both a and b. d.-- neither a nor b, 57. Total quality management (TQM) emphasizes quality as a basic “organizational function. Under this approach, a. a large number of suppliers are used to obtain the lowest ‘possible prices. bi highly trained inspectors perform quality control at. the end of the production process. Quality measurement occurs throughout the process. and errors or defects are caught and corrected at source, 1d. the primary responsibility for the quality of the products/ ‘services is assumed by upper management, 58. A characteristic of total quality management (TQM) is, education and self-improvement. quality by final inspection. management by objectives (MBO). ‘on-the-job training by other workers. aoge 59. Which of the following statements about TQM is correct? a. TQM is characterized by a hierarchical organizational structure. b. in TQM, the organizational structure involves teams of people from different specialties. c In TQM, the organizational structure involves teams of people from the same specialty. . In TQM, it is advisable that specialists in the organization work individually rather than as a team, 60. An innovative manufacturing company does not 2.. respond to the changing business enviianment, 122 PART 4 - OVERVIEW OF THE MAS PRACTICE BY CPAa b. emphasize on continuous improvement. © pei rrnt vena ahaa d. emphasize on existing products. 61.. The primary component of the quality contro! function is to 1, sstisfy upper management. . cotermine the appropriate timing of inepection. able to deiver the product at the eaitiest possiole time. d. ensure that goods and services conform to the design specifications. 62, The cost of scrap, rework, tooling changes, and downtime are a. prevention costs. ©. appraisal costs. b.” internal failure costs. d,_ external fellure costs, -of-quialty report includes most costs related to quality, such 2 the costs of prevention, appraisal, internal failure, and external Exaraples of these costs are as follows, except 4, cost of supplier evaluation, c. product testing cost. b. training costs. 4. cpportunity costs. 64, Following are some items included in the cost-of-quality report prepared for Kalidad Company for the previous month: 10,000 4,000 Equipment maintenance 16,006 Rework 5,000 Based on the above data, 2, prevention cost is 26,000. b, appraisal cost is PS,000. external failure cost is P4,000. internal failure cost is 21,000. 5. Which of the following does not measure product quality? 2. The percentage of products passing quality tests the first time, 'b. The percentage of defective products retumed by customers: ‘Chapter 3 Kanagoiat Acgounting: Baie Frameworks & Contemporary Developments 123. 66. 67. The number of defective parts discovered during inspection in relation to total production, * de The quantity of products delivered to customers per period. Some companies under TQM use quality cost indices to measure and analyze the cost of maintaining a givén level of quality. For example, a quality cost index'with direct labor as the base may be - computed as follows: _ Total quality cost Quality cost index = —Sret labor cost * 10% Assume that @ company has the following data for the first quarter of the year: : Conformance costs: Prevention P 20,000 ‘Appraisal 30,000 Won-conformance costs: Internal failure 60,000 External failure 10,000 ‘Manufacturing costs: Materials 500,000 Direct labor 300,000 Factory overhead 200,000. Based on the given data, the company’s qualty-cost index for the first quarter of the year was a 24%. c 23.33% b. 60%. d. 40%. The company’s management accountant prepared the following Cost of Quality Report for the years 200A and 2008: 2 2004 2008 Prevention costs, P’ 125,000 P187,500. Appraisal costs 131,250 196,875, Internal failure costs 118,750 71,250 External failure costs 750,000 388,125 - Total ‘PL.125,000 P843.250 124 PART + ~ OVERVIEW OF THE MAS PRACTICE BY CRAG Based on the repoit, ¥ fikely correct? 2. Quality costs, such as repair or realacement of returned units, increased by 40%, b. Quality costs, such as cost of downtime on machinery while Gone, increased by 48%. ©. An increase in prevention cost was sulely responsible for the decrease in 4, A increase in Purposes (Uses) of Management Accounting: 15. “16. 7. 18. 19, 20: 4: assurance of accountal 4. evaluation 2. planning 5. reporting 3. control Marketing is not included in the above purposes. Management does not use management accounting for marketing per sé. Delegation is not among the MANAGEMENT ACCOUNTING PROCESSES: 4. measurement 5. interpretation 2. identification 6, communication 3. accumulation 7. analysis 4. preparation Financial accounting is primarily concerned with external financial reporting, itis concerned with quantitative information. Choices A and 8. are characteristics of management aceounting. The other choices, A, 8, and C are functions of the treasurer. ‘The other choices, A, C, and D are controllership functions. ‘The first action that should be taken is to discuss the ethical problems with the management accountant's immediate superior. If the immediate superior is involved, the case ‘should be taken to the next higher managerial level. ‘Communicating with the police and other law enfofcement agencies, as well as to other individuals not employed in the company is not appropriate, unless legally prescribed. Resignation is a last resort. Remaining silent will mean ‘condonation of violation of others. Choices A and B pertain to the requirements on competence, Choice Cis about confidentiality. 132 134 33. 34, o 37. _PART 1 OVERVIEW OF THE MAS pRacnie owonas — PARY 4 OVERVIEW OF THE WAS PRACTICE EY CPAS. Under JIT, the plant floor is J2id out with many product flow linos — one for each farnily of products. panies under the JIT system often experience a’¥edugtion in the number of suppiisrs. Suppliers are limited to those who wants cronipt detivery of quality goods. This, however, results into cn increase in the number of deliveries, AS mors omlers are placed. there is a greater nead for linkage with the computerized ordar system. Moreover, in JIT, quaiily control is shittes! to suppliers. JT companies typically © act inspect incorning goods: the assumption is that goods: delivered are of perfect quality. Under JH, it is assumed that goods delivered are of perfect qualty eT reducas the number of suppliers and increases the number of cetverios, 1 JIT, non-value added activites, such 2s storage, handing, ote, are eliminated . Under, JIT system, eniory is minimized. Thus, the sysiem increases the company's inventory turnover and decreases inveniory as 2 percentage of total assets. Cost of Sates ‘Average inventory » a decrease in the average inventory increases the turnover toventory Tumover Percentage of inventory. Inventory fo Tota! asseis Total ascets } a decrease in inventory decreases the ratio of inventory to total assets Reduction of, if possible, eiiminatign of inventories is the primary objective of a just-in-time system, Chapter 3 Manager Accounting: Bask Famewods & Contemporary Devsupmens 135, 39. 8 Customer demand A. 42. a. 200 Less beginning inventory 0 Planned production 430 The statement: is actually the definition of Total Quality ” Management (TOM), Quality costs are costs incurred on quality related processes. ‘These are costs incurred to prevent defects, or incurred as a result of defects occurring, Conformance Costs are composed of: 1. PREVENTION CosTs — costs ‘relating to any activity that reduces the number of defects in products and services. 2. APPRAISAL OR INSPECTIONS CosTS — incurred in activities relating to inspection to make sure that the products/ services meet quality standards. > Failure costs are non-conformance costs. > Conformance costs and non-conformance costs. are the types df quality costs. > ” Appraisal costs are inspection costs. - Non-Conformance Costs (or Failure Costs) are composed of 1... INTERNAL FAILURE COSTS — result from discovery of defects during the approvaliinspection process. 2. EXTERNAL FAILURE CosTS ~ result when a defective product is delivered to a customer. > Prevention and appraisal costs are conformance costs. > Cost of technical support given to suppliers is an example. cf prevention cost, a conformance cost. > Cost of testing incoming matérials is an example of appraisal cost, a conformance cost. When mass inspection of goods is done only at the end of the process, the company fails to review and evaluate, for + cffciency and effectiveness, the different processes: used"in proc'ucing the goods. 136 48. 46. 47. 48. 49. PART 4 - OVERVIEW OF THE MAS PRACTICE BY CPAS No quality control system is perfect, Le., 100% effective. Not only mass inspettion at the end of the process, but also other quality contro! processes, can be expensive. Reworking defective items may be possible, although costly ° vy v The primary reason for adopting TOM is to achieve greater ‘customer satisfaction > Greater employee participation is necessary in TOM, but it is not the primary reason for adopting the system. > Delivery time and charges should really be reduced, but delivery is just one of the many activities that are improved in TOM. Ifthe company would adopt TOM to attain the goal of being a producer of quality products, it should spend the majority of its funds on prevention costs. Expenditures on prevention (For example, employee training, review of equipment design, Preventive maintenance, evaluation of suppliers) reduce total quality costs, Inspection of the products should be done to detect those that do not conform to: specifications. Inspection cost is an example of appraisal cost : All the given choices are among the activities that must be undertaken by the management accountant if TOM is to be adopted. The other activity not given in the choices is the standardization of costs of quality reports. Statistical quality control is designed to detect quality problems before extemal problems can ocour. It is a means of finding defective output after it has occurred. Detecting or finding defects is done by inspecting, which is one of the activities in appraisal Choice Bs actually the definition of break-even time. > Break-even time is determined by calculating the time required for the present value of the cumulative cash flows toequal zero. Chapter 3 =Wanageial Accounting: Basic Framewnts &Contonparay Developments 137 : ee 51 >. Choice C refers to the conventional break-even point. © Responding to customer complaints results into external failure costs > Rework results info intemal failure costs. _ ® Statistical quality control procedures result into appraisal costs. 2. D_ Extemal failure costs are incurred after the product fias been 53 87. shipped. Therefore, it is the Customers who find out about the: defect As a result, customers would perceive the. company's products to be of low quality. This, of course, is most damaging to a company's reputation. Following are some of the Indicators used tO Measure PRODUCT QUALITY. number and types of customer complaints returns and allowances competitive rank on-time delivery Rens v Production cycle time is not an indicatorimeasure of product quality. It refers to the length of time required for a product to pass completely through a manufacturing process. Only during processing time. is value added to the product. ‘Storage and waiting, movement, ’and inspection are non-value- ‘adding activities, Frevention is less costly than detection and correction of defective output. ‘Customer-centered companies should serve both internal and externa}-customers, : TQM isa continuous pursuit of quality in all aspects of the organizational activities Thus, quality measurement should be done throughout the process and errors should be caught and ‘corrected at source. * 138 59, 60, 61 PART 4 ~ OVERVIEW OF THE MAS PRACTICE BY CRAB > TOM philosophy recommerds limiting the number of Suppliers to create a strong relationship with them. > In TQM, errors are discovered throughout the process, > In TQM, all members of the organization assuiive responsibility for the.quality of products and services, ‘n TQM, continuous improvement should be the primary career. Objective of everyone. Hence, education and self-improvement are essential > in TOM, a basic tenet is doing it right the first time. Hence, quality by final inspection is unnecessary if quality is buit in from the start i > TQM recommends elimination of numerical quotas, thé aggressive pursuit of which (numerical quotas) is caused by Management by Objectives (MBO). 5 » On-the-job training by co-workers may entrench bad work habits. In TQM, everybody should receive the “proper Waining, In TOM, it is advised that the traditional hierarchical structure be replaced with teams of people from different specialties. Innovative companies are responsive to the changing business environment. These companies give much emphasis on continuous improvement and customer satisfaction through product quality. Innovative companies, therefore, do not ‘simply emphasize existing products without considering ‘changes or improvement on a continuous basis, The primary intent of quality control is to ensure that goods and services conform to the design specifications. > Quality control is geared toward satisfying the customer, not upper management. > Determining the appropriate timing of inspection is a step towards ‘approaching quality control, but it is not the primary component of the quality control function > Products/services should be delivered at the earliest Possible time; however, the company must be sure that such products/services are quality products/ services Chapter 3 Manager! Accounting: Bese Framers & Contemporary Devoopmins 139 2. 63, 65. 66. B Internal failure costs are incurred when detection’ of defects occurs before shipment Examples are the cost of rework, scrap, tooling changes, and downtime. Opportunity costs are income or benefit forgone when another. altemative is chosen. These are not recorded by the accounting system: Hence, they should not be included in the cost-of-quality report. Examples of such quality related opportunity costs are lost contribution margin from’ reduced sales, sales prices, and market share. ‘ Prevention cost, Employee training P10,000 Equipment maintenance _ 16,000 Total 26.000 > Appraisal cost (product testing) is P4,000. > Internal failure cost (rework) is P5,000. G The quantity of products. delivered may be a measure of efficiency and effectiveness of the delivery procedures, but not necessarily a measure of the quality of such products. Quality costs: Prevention : P 20,000 4 ‘Appraisal 30,000 Internal failure 60,000 External failure 10,000 Total quality costs Pi20.000 Quality cost index = Tota. quality cost 499 Direct labor cost = __P120,000 = —~pa00,000 * 10° 40% 140 PART 1 - OVERVIEW OF THE MAS PRACTICE BY GPAa) 67. D_ An increase in.conformance costs (prevention: and appraisal) resulted in a higher quality product:and a decrease in non ‘conformance costs or failure costs: —————— 200A__2008 __Peso Change _% Change» Prevention P 125,000 187,500 P 62,500. |, 50% Appraisal 131,250 19687565625’ BOK Internal fae 418750. 71,250 (47,500) (40%) Extemal failure 750,000 388,125 (361,875) (48%), : Pi5000 eazs0 ezeza” | sm ® Cost of repairs or replacement of retumed units are, external failure costs, which decreased by 48%. > Costs of downtime on machinery while rework is being done are internal failure costs, which decreased by 40% > The increase in prevention cost was not solely responsible for the decrease in quality costs. The other conformance costs, i.e., the appraisal costs, likewise increased, which also contributed to the decrease in total quality costs. 68. A BPR involves completely redesigning business processes. It is often implemented by outside consultants. > In redesigning the business processes, non-value-added activities are eliminated » In BPR, the business processes, not the company's products, are changed, > Choice D refers to Total Quality Management (TQM). 69. B Process re-engineering results in laying off workers who are no longer needed. Thus, employees’ morale suffer and they (employees) resist any process re-engineering efforts 70. D The three major business trends that promote the use of BPR are: (1) pursuit of increased quality, (2) technological advancement, and (3) increase in price competition caused by globalization. > The accountant's desire to introduce change is not among the business trends that promote the use of BPR. Chapter é-tunsgeia Accounting: Ea Frama KCacinponty Depmaats 14] n 72. 73. 74, 75. 79, C Process re-engineering: involves ~retlesigning of business processes, eliminating non-value-added actives. The result, therefore; is a streamlined process that uses fewer resources, takes less time, and generates fewer errors. * ‘A. A Constraints anything that prevents you from geting more of what you want. Choice B pertains to nion-value-added activites. > Choice Cis the definition of business process. > Choice Dis the definition of throughput time or cycle time. A Under TOC, improvement efforts should be focused on’the constraints. Such efforts would be largely wasted if focused onnon-constraints. > Aworkstation with the highest productive capactty may not be.a constraint workstation » TOC states that every organization has’ at least one constraint. B The mixing department, which has a productive capacity of only 5,000 bottles, is the constraint, as it is the bottleneck in the Droduiction process. Imorovement efforts should be focused on this department W unicase we productive capacity so that the company may proviira anciinh Fottles to meet the average weekly demain. D_ Allthe given statements about TOC are correct. D_ Thei controller. is primarily responsible for management accounting and financial accounting

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