Chapter 5 — The Conversion Cycle 13.

The only objective of the Just-In-Time philosophy is to

reduce inventory levels.
TRUE/FALSE ANS: F PTS: 1

1. The philosophy of customer satisfaction permeates the 14. Accounting in a world-class manufacturing environment
world-class firm. emphasizes standard cost and variance analysis.
ANS: T PTS: 1 ANS: F PTS: 1

2. Reports generated by the cost accounting system 15. ABC assigns cost to cost objects based on their use of
include performance reports and budget reports. activities.
ANS: T PTS: 1 ANS: T PTS: 1

3. The cost accounting system authorizes the release of 16. The complexities of ABC have caused many firms to
raw materials into production. abandon this method in favor of a simpler accounting
ANS: F PTS: 1 model called value stream accounting.
ANS: T PTS: 1
4. Batch processing creates a homogeneous product
through a continuous series of standard procedures. 17. A company’s value stream includes all steps in a
ANS: F PTS: 1 process, both essential and non-essential, for which the
customer is willing to pay.
5. The bill of materials specifies the types and quantities ANS: F PTS: 1
of the raw materials and subassemblies used in
producing a single unit of finished product. 18. Lean manufacturing evolved from the Toyota
ANS: T PTS: 1 Production System (TPS), which is based on the just-in-
time (JIT) production model.
6. A purchase requisition authorizes the storekeeper to ANS: T PTS: 1
release materials to individuals or work centers in the
production process. 19. The two subsystems of a traditional conversion cycle
ANS: F PTS: 1 are the production system and the delivery system.
ANS: F PTS: 1
7. Cement and petrochemicals are produced by the batch
manufacturing method. 20. Manufacturing resources planning (MRP II) has evolved
ANS: F PTS: 1 into enterprise resource planning (ERP).
ANS: T PTS: 1
8. The objective of the Economic Order Quantity model is
to reduce total inventory costs by minimizing carrying 21. Pull processing involves pulling products from the
costs and ordering costs. consumer end (demand), rather than pushing them
ANS: T PTS: 1 from the production end (supply).
ANS: T PTS: 1
9. The work-in-process file is the subsidiary ledger for the
work-in-process control account. 22. The inventory control function updates and maintains
ANS: T PTS: 1 both raw materials and finished goods inventory
subsidiary ledgers.
10. Move tickets authorize the storekeeper to release ANS: T PTS: 1
materials to work centers.
ANS: F PTS: 1 23. An excess materials requisition is a control that signals
that a greater than standard quantity of materials is
being ordered from the vendor.
11. Typically the only allocated cost in the value stream is a
charge per square foot for the value stream production ANS: F PTS: 1
facility.
ANS: T PTS: 1 24. Cost accounting initiates a WIP account upon receiving
the first move ticket of a batch.
12. Computer Integrated Manufacturing focuses on ANS: F PTS: 1
reducing the complexity of the physical manufacturing 25. A company’s value stream map depicts only the value
layout of the shop floor. added activities needed to complete a
ANS: F PTS: 1 process or product.
ANS: T PTS: 1
 c. MRP II evolved from MRP and MRP II evolved into
Chapter 5 — Multiple Choice ERP
d. None of the above is true.
1. Which statement is true?
a. World-class companies must maintain strategic 8. The production schedule is
agility and be able to turn on a dime. a. the expected demand for the firm’s finished goods
b. World-class companies motivate and treat for a given year
employees like appreciating assets. b. the formal plan and authority to begin production
c. Manufacturing firms that achieve world-class c. a description of the type and quantity of raw
status do so by following a philosophy of lean materials and subassemblies used to produce a
manufacturing single unit of finished product
d. All the above are true d. the sequence of operations during manufacturing

2. Which function is not a part of the batch production 9. A move ticket

process?
a. is the formal plan and authority to begin
a. Plan and control production production
b. Prepare purchase orders b. specifies the materials and production required for
c. Maintain inventory control each batch
d. Perform cost accounting c. records the work done in each work center
d. authorizes the storekeeper to release materials to
3. The purpose of the cost accounting system is to work centers
a. produce information for inventory valuation
b. authorize release of raw materials 10. The internal control significance of the excess materials
c. direct the movement of work-in-process requisition is that it
d. determine material requirements a. indicates the amount of material released to work
centers
4. Which process creates a homogeneous product b. identifies materials used in production that exceed
through a continuous series of standard procedures? the standard amount allowed
a. batch process c. indicates the standard quantities required for
production
b. make-to-order process
d. documents the return to raw materials inventory
c. continuous process
of unused production materials
d. none of the above
11. Inventory control performs all of the following tasks
5. An example of a continuous process is the production except it
of
a. provides production planning and control with the
a. wedding invitations inventory status report of finished goods
b. milk products b. updates the raw material inventory records
c. jet aircraft c. prepares a materials requisition for each
d. all of the above production batch
d. records the completed production as an increase
6. All of the following are characteristics of batch to finished goods inventory
processing except
a. each item in the batch is similar 12. The storekeeper releases raw materials based on the
b. batches are produced in accordance with detailed a. production schedule
customer specifications b. materials requisition
c. batches are produced to replenish depleted c. work order
inventory levels
d. bill of materials
d. setting up and retooling is required for different
batches
13. Which of the following is not an assumption of the
Economic Order Quantity model?
7. When one of the following statements is true?
a. demand for the product is known with certainty
a. ERP evolved directly from MRP.
b. total cost per year of placing orders is fixed
b. ERP evolved into MRP and MRP evolved into MRP II
c. lead time is known and is constant
 d. there are no quantity discounts d. The financial orientation of standard costing may
promote bad decisions.
14. Which of the following is not an assumption of the e. All of the above are problems with standard
Economic Order Quantity model? costing.
a. demand for the product is known with certainty
b. total cost per year of placing orders is fixed 20. Computer integrated manufacturing includes all of the
c. lead time is known and is constant following technologies except
a. robotics
d. there are no quantity discounts
b. materials requirements planning
15. Firms hold safety stock to compensate for c. automated storage and retrieval systems
a. mathematical weaknesses of the Economic Order d. computer aided design
Quantity model
b. variations in lead time or daily demand 21. Which of the following would not be included as a
value stream cost?
c. fluctuations in carrying costs
a. Labor costs of employees who simply transport the
d. uncertainty in the estimation of ordering costs
product from cell to cell.
b. Labor costs of employees who design the product.
16. What is the economic order quantity if the annual
demand is 10,000 units, set up cost of placing each c. A charge per square foot for the value stream
order is $3 and the holding cost per unit per year is production facility including cost of rent and
$2? building maintenance.
a. 174 d. All of the above are value stream costs
b. 123
c. 245 22. Which situation violates the segregation of functions
control procedure?
d. none of the above
a. production planning and control is located apart
from the work centers
17. If the daily demand is 40 units and the lead time is 12
days, the reorder point is
b. inventory control maintains custody of inventory
items
a. 52 units
c. cost accounting has custody of and makes entries
b. 48 units on cost records
c. 480 units
d. work centers record direct labor on job tickets
d. None of the above
23. All of the following are internal control procedures
18. Which statement is not correct? that should be in place in the conversion cycle except
a. general ledger creates a new cost record upon a. calculation and analysis of direct material and
receipt of a work order from production planning direct labor variances
and control
b. retention of excess materials by work centers
b. cost accounting updates the cost record with data
gathered from the materials requisition
c. physical count of inventory items on hand
c. general ledger posts summary information about d. limited access to raw material and finished goods
inventories
the manufacturing process based on a journal
voucher prepared by cost accounting
d. cost accounting computes variances and applies
24. Process simplification focuses on
overhead to individual cost records a. using Computer Numerical Controlled machines
which stand alone within a traditional setting
19. Which of the following is not a problem associated b. completely automating the manufacturing
with standard cost accounting? environment
a. Standard costing motivates management to c. reducing the complexity of the physical
produce large batches of products and build manufacturing layout of the shop floor
inventory. d. organizing the process into functional departments
b. Applying standard costing leads to product cost
distortions in a lean environment. 25. A manufacturing process that is organized into group
c. Standard cost data are associated with excessive technology cells utilizing no human labor is called
time lags that reduce its usefulness. a. islands of technology
 b. process simplification b. inaccurate cost allocations
c. computer integrated manufacturing c. an emphasis on standard costs
d. traditional manufacturing d. immediate feedback about deviations from the
norm
26. An example of automation of manufacturing design is
a. Computer Aided Engineering 33. Which statement is not correct?
b. Automated Storage and Retrieval Systems a. cost objects are the reasons for performing
c. Computer Numerical Control robotics activities
d. robotics b. cost object describes the work performed in a firm
c. activities cause costs
27. An example of automation of manufacturing planning d. cost objects create a demand for activities
is
a. Computer Aided Engineering 34. Firms are abandoning Activity Based Costing (ABC)
b. Automated Storage and Retrieval Systems because
c. Materials Requirements Planning a. it does not facilitates the analysis of variances
d. Computer Numerical Control b. it is complex and time consuming
c. it does not recognize the importance of direct labor
as a component of total manufacturing cost
28. Which of the following is not true?
a. The complexities of ABC have caused many firms to d. the financial nature of the reports does not permit
comparisons to be made among different types of
pursue value stream accounting.
products
b. Value stream accounting captures costs related to
value added activities within a specified
department or activity. 35. In traditional firms, information reporting
c. An essential aspect in implementing value stream a. provides financially oriented information relating
accounting is defining the product family. to operations
d. Value stream accounting makes no distinction b. presents detailed information about activities
between direct costs and indirect costs. shows the allocation of costs first to activities and
then to cost objects identifies nonessential
activities
29. Characteristics of lean manufacturing include all of the
following except
c. shows the allocation of costs first to activities and
then to cost objects
a. push manufacturing
d. identifies nonessential activities
b. zero defects
c. reduced setup time and small lot sizes
36. Which of the following statements about the EOQ
d. reliable vendors inventory model assumptions is incorrect?
a. Demand for the product is constant and known
30. The cost of poor quality includes all of the following with certainty.
except
b. The lead time is a variable.
a. cost of rework c. All inventories in the order arrive at the same time.
b. warranty claims d. Total ordering cost is a variable
c. scheduling delays
d. proceeds from the sale of scrap 37. Which statement is not correct?
a. Inventories provide a competitive advantage.
31. A flexible manufacturing system b. Inventories can invite overproduction.
a. creates bottlenecks in the process c. Inventories are expensive to maintain.
b. leads to an “us” versus “them” attitude among d. Inventories may conceal problems.
workers
c. shortens the physical distance between activities
38. All of the following are documents in batch process
d. is organized along functional lines production systems except
a. production schedule
32. Deficiencies of the traditional cost accounting b. route sheet
information system include all of the following except
c. materials requisition
a. an emphasis on financial performance
 d. bill of manufacturing ANS: F PTS: 1
39. Transaction authorization occurs in a traditional 4. To improve internal control, paychecks
manufacturing environment in all of the following should be distributed by the employee's supervisor.
ways except ANS: F PTS: 1
a. production planning and control initiates
production with a work order 5. Employee paychecks should be drawn
b. movement of the work through the production against a special checking account.
process follows the move ticket ANS: T PTS: 1
c. the sales department modifies work orders to
match changes in demand 6. Because a time clock is used, no supervision
is required when employees enter and leave the
d. the materials requisition authorizes the
work place.
storekeeper to release materials to the work
ANS: F PTS: 1
centers

7. Inventory control performs the formal

40. Which of the following is not a principle of lean record keeping function for fixed assets.
manufacturing?
ANS: F PTS: 1
a. Products are pushed from the production end to
the customer
8. The depreciation schedule shows when
b. All activities that do not add value and maximize assets are fully depreciated.
the use of scarce resources must be eliminated ANS: T PTS: 1
c. Achieve high inventory turnover rate.
d. A lean manufacturing firm must have established 9. Authorization to dispose of fixed assets
and cooperative relationships with vendors should be issued by the user of the asset.
e. All of the above are lean manufacturing principles. ANS: F PTS: 1

41. All of the following are problems with traditional 10. Work-in-process records are updated by
accounting information except: payroll personnel.
a. Managers in a lean setting require immediate ANS: F PTS: 1
information.
b. The measurement principle tends to ignore 11. Ideally, payroll checks are written on a
standards other than money. special bank account used only for payroll.
c. Standard costing motivates nonlean behavior in ANS: T PTS: 1
operations.
d. The overhead component in a manufacturing 12. The supervisor is the best person to
company is usually very large. determine the existence of a “phantom employee”
and should
e. All of the above are problems associated with
distribute paychecks.
traditional accounting information.
ANS: F PTS: 1

13. Payroll processing can be automated easily

Chapter 6 — The Expenditure Cycle Part II: Payroll
because accounting for payroll is very simple.
Processing and Fixed Asset Procedures
ANS: F PTS: 1

TRUE/FALSE 14. Timekeeping is part of the personnel

function.
1. Time cards are used by cost accounting to ANS: F PTS: 1
allocate direct labor charges to work in process.
ANS: F PTS: 1 15. Fixed asset accounting systems include cost
allocation and matching procedures that are not part
2. The personnel department authorizes of routine expenditure systems.
changes in employee pay rates. ANS: T PTS: 1
ANS: T PTS: 1
16. Asset maintenance involves only the
3. Most payroll systems for mid-size firms use recording of depreciation charges. Physical
real-time data processing. improvements are always expensed.
 ANS: F PTS: 1 a. general ledger compares the labor distribution
summary from cost accounting to the
17. Fixed Asset Systems must keep track of the disbursement voucher from accounts payable
physical location of each asset to promote b. personnel compares the number of employees
accountability. authorized to receive a paycheck to the number
ANS: T PTS: 1 of paychecks prepared
c. production compares the number of hours
18. Time cards capture the total time an reported on job tickets to the number of hours
individual worker spends on each production job. reported on time cards
ANS: F PTS: 1 d. payroll compares the labor distribution summary
to the hours reported on time cards
19. Accounting conventions and IRS rules
sometime specify the depreciation parameters to be 3. Which internal control is not an important part of
used. the payroll system?
ANS: T PTS: 1 a. Supervisors verify the accuracy of employee time
cards.
20. The fixed asset disposal report authorizes b. Paychecks are distributed by an independent
the user department to dispose of a fixed asset. paymaster.
ANS: F PTS: 1 c. Accounts payable verifies the accuracy of the
payroll register before transferring payroll funds
21. Work centers provide the personnel action to the general checking accounting.
form, which triggers the payroll process. d. General ledger reconciles the labor distribution
ANS: F PTS: 1 summary and the payroll disbursement voucher.

22. The payroll department is responsible for 4. Which transaction is not processed in the Fixed Asset
both updating the employee records and writing System?
paychecks.
a. purchase of building
ANS: T PTS: 1
b. improvement of equipment
c. purchase of raw materials
23. The paymaster distributes paychecks to
work center supervisors.
d. sale of company van
ANS: F PTS: 1
5. Depreciation
24. Inventory control authorizes fixed asset a. is calculated by the department that uses the
purchases with a purchase requisition. fixed asset
ANS: F PTS: 1 b. allocates the cost of the asset over its useful life
c. is recorded weekly
25. When fixed assets are received, the d. results in book value approximating fair market
receiving clerk sends copies of the receiving report value
to the inventory control clerk and the AP clerk.
ANS: F PTS: 1 6. Depreciation records include all of the following
information about fixed assets except
a. the economic benefit of purchasing the asset
Chapter 6 — Multiple Choice b. the cost of the asset
c. the depreciation method being used
d. the location of the asset
1. The document that captures the total amount of
time that individual workers spend on each 7. Which control is not a part of the Fixed Asset
production job is called a System?
a. time card a. formal analysis of the purchase request
b. job ticket b. review of the assumptions used in the capital
c. personnel action form budgeting model
d. labor distribution form c. development of an economic order quantity
model
2. An important reconciliation in the payroll system is d. estimates of anticipated cost savings
8. Objectives of the Fixed Asset System do not include d. Paychecks should be prepared from the job
a. authorizing the acquisition of fixed assets tickets.
b. recording depreciation expense
c. computing gain and/or loss on disposal of fixed 14. Which department is responsible for approving
assets changes in pay rates for employees?
d. maintaining a record of the fair market value of a. payroll
all fixed assets b. treasurer
c. personnel
9. Which of the following is not a characteristic of the d. cash disbursements
Fixed Asset System?
a. Acquisitions are routine transactions requiring 15. Which of the following situations represents a
general authorization. serious control weakness?
b. Retirements are reported on an authorized a. Timekeeping is independent of the payroll
disposal report form. department.
c. Acquisition cost is allocated over the expected life b. Paychecks are distributed by the employees’
of the asset. immediate supervisor.
d. Transfer of fixed assets among departments is c. Time cards are reconciled with job tickets.
recorded in the fixed asset subsidiary ledger. d. Personnel is responsible for updating
employee records, including creation of records
10. In the payroll subsystem, which function should for new hires.
distribute paychecks?
a. personnel 16. Why would an organization require the paymaster
b. timekeeping to deliver all unclaimed paychecks to the internal
c. paymaster audit department?
d. payroll a. to detect a “phantom employee” for whom a
check was produced
b. to prevent an absent employee’s check from
11. Where does the responsibility lie for reconciling the being lost
labor distribution summary and the payroll
c. to avoid paying absent employees for payday
disbursement voucher?
d. to prevent the paymaster from cashing
a. cash disbursements
unclaimed checks
b. cost accounting
c. personnel 17. Which of the following is not a reasonable control
d. general ledger for fixed assets?
a. Proper authorization is required for acquisition
12. Which of the following statements is not true? and disposal of fixed assets.
a. Routine payroll processing begins with the b. Fixed asset records show the location of each
submission of time cards. asset.
b. Payroll clerks must verify the hours reported on c. Fully depreciated assets are immediately
the time cards. disposed of.
c. Payroll reconciles personnel action forms with d. Depreciation policies are in writing.
time cards and prepares paychecks.
d. Cash disbursements signs paychecks and 18. Cost accounting updates work-in-process accounts
forwards them to the paymaster for distribution. from
a. time cards
13. In a manufacturing firm, employees use time cards b. the labor distribution summary
and job tickets. Which of the following statements is
c. job tickets
not correct?
d. personnel action forms
a. Job tickets are prepared by employees for each
job worked on, so an employee may have more
that one job ticket on a given day. 19. Payroll uses time card data to do all of the following
except
b. An individual employee will have only one time
card.
a. prepare the payroll register
c. The time reported on job tickets should reconcile b. update employee payroll records
with the time reported on time cards. c. prepare the labor distribution summary
 d. prepare paychecks b. prepares the payroll voucher
c. reconciles time cards and employee records
20. Payroll checks are typically drawn on d. distributes paychecks to employees
a. the regular checking account
b. a payroll imprest account 28. All of the following are processed by the Fixed Asset
c. a wages payable account System except
d. petty cash a. sale of unneeded equipment
b. purchase of raw materials
21. The personnel action form provides authorization c. repair of production equipment
control by d. purchase of a new plant
a. preventing paychecks for terminated employees
b. verifying pay rates for employees 29. The Fixed Asset System performs all of the following
c. informing payroll of new hires except
d. all of the above a. determines the need for new assets
b. maintains depreciation records
22. Accounting records that provide the audit trail for c. records retirement and disposal of assets
payroll include all of the following except d. tracks the physical location of fixed assets
a. time cards
b. job tickets 30. The payroll department performs all of the following
c. payroll register except
d. accounts payable register a. prepares paychecks
b. transfers adequate funds to the payroll imprest
23. Personnel action forms are used to do all of the account
following except c. updates employee payroll records
a. activate new employees d. prepares the payroll register
b. terminate employees
c. record hours worked 31. Depreciation
d. change pay rates a. assures that assets are reported at fair market
value
24. The payroll department performs all of the following b. is discretionary for many firms
except c. allocates the cost of an asset over its useful life
a. prepares the payroll register d. is the responsibility of the department using the
b. distributes paychecks asset
c. updates employee payroll records
d. prepares paychecks 32. The Fixed Asset System is similar to the expenditure
cycle except
25. The document that records the total amount of time a. fixed asset transactions are non-routine and
spent on a production job is the require special authorization and controls
a. time card b. fixed assets are capitalized, not expensed
b. job ticket c. both a and b
c. labor distribution summary d. none of the above
d. personnel action form
33. Asset maintenance involves
26. A control technique that can reduce the risk of a a. the recording of periodic depreciation
terminated employee being paid is b. adjusting the asset records to reflect the cost of
a. a security camera viewing the time clock physical improvements
b. the supervisor taking role during the shift c. keeping track of the physical location of the
c. paychecks being distributed by an independent assets
paymaster d. all of the above
d. reconciliation of time cards and job tickets
34. The Fixed Asset Systems does all of the following
27. Accounts payable except
a. signs paychecks a. records acquisition of assets
 b. records improvements to assets
c. estimates the fair market value of assets in
service
d. records the disposal of assets

35. Asset disposal

a. occurs as soon as an asset is fully depreciated
b. requires no special authorization
c. automatically initiates the purchase of a
replacement asset
d. must follow formal authorization procedures

36. Which of the following uses fingerprint or hand-vein

scan technology to produce the time and attendance
file?
a. Biometric time clocks
b. Magnetic swipe ID cards
c. Mobile remote devices
d. Proximity cards

37. Which of the following works like a credit card with

the time clock?
a. Biometric time clocks
b. Magnetic swipe ID cards
c. Mobile remote devices
d. Proximity cards

38. Which of the following works through wallets,

purses and card holders?
a. Biometric time clocks
b. Magnetic swipe ID cards
c. Mobile remote devices
d. Proximity cards

39. Which of the following is popular among businesses

with employees in the field who travel between
clients and companies with foreign-based
employees?
a. Biometric time clocks
b. Magnetic swipe ID cards
c. Mobile remote devices
d. Proximity cards

40. Which of the following is NOT an input control to

reduce the risks of data entry errors and payroll
fraud for a company with a mobile or distributed
work force?
a. Limit tests that detect excessive hours
b. Check digits that detect transcription errors in
employee identification
c. Biometric scanners, swipe cards, and PINS
d. Multilevel security that achieves segregation of
duties