STUDY UNIT SEVENTEEN PERFORMANCE MEASUREMENT AND PROCESS MANAGEMENT Flashcards Preview

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Flashcards in STUDY UNIT SEVENTEEN PERFORMANCE MEASUREMENT AND PROCESS MANAGEMENT Deck (25):
1

Competitive benchmarking is not the only form of benchmarking used in quality management. Other types include process benchmarking, sensitivity benchmarking, and internal benchmarking.
True
False

Correct
False
Your answer is correct.
The four most prominent types of benchmarking are competitive benchmarking, process (function) benchmarking, strategic benchmarking, and internal benchmarking.

2

Fact Pattern: The management and employees of We Move You, a large household goods moving company, decided to adopt total quality management (TQM) and continuous improvement (CI). They believed that, if their company became nationally known as adhering to TQM and CI, one result would be an increase in the company’s profits and market share.
The primary reason that We Move You adopted TQM was to achieve
A Reduced delivery time.
B Greater customer satisfaction.
C Greater employee participation.
D Reduced delivery charges.

B Greater customer satisfaction.
This answer is correct.
TQM is an integrated system that anticipates, meets, and exceeds customers’ needs, wants, and expectations.

3

Which of the following is a key to successful total quality management (TQM)?
A Creating appropriate hierarchies to increase efficiency.
B Focusing intensely on the customer.
C Training quality inspectors.
D Establishing a well-defined quality standard, then focusing on meeting it.

B Focusing intensely on the customer.
This answer is correct.
TQM emphasizes satisfaction of customers, both internal and external. TQM considers the supplier’s relationship with the customer, identifies customer needs, and recognizes that everyone in a process is at some time a customer or supplier of someone else, either inside or outside of the organization.

4

Which of the following balanced scorecard perspectives examines a company’s success in targeted market segments?
A Internal business process.
B Financial.
C Customer.
D Learning and growth.

C Customer.
This answer is correct.
Any critical success factor that addresses some aspect of the target market is included in the customer perspective

5

Which of the following personnel has primary responsibility for allocating sufficient resources to ensure successful completion of a project?
A Project manager.
B Project sponsor.
C Steering committee.
D Project team members.

B Project sponsor.
This answer is correct.
The project sponsor is vested with sufficient authority by executive management to allocate the resources that will ensure successful completion.

6

In responsibility accounting, a center’s performance is measured by controllable costs. Controllable costs are best described as including
A Direct material and direct labor only.
B Only those costs that the manager can influence in the current time period.
C Those costs about which the manager is knowledgeable and informed.
D Only discretionary costs.

B Only those costs that the manager can influence in the current time period.
This answer is correct.
A controllable cost is one that is directly regulated by a specific manager at a given level of production within a given time span or that the manager can significantly influence.

7

Decentralized firms can delegate authority and yet retain control and monitor managers’ performance by structuring the organization into responsibility centers. Which one of the following organizational segments is most like an independent business?
A Revenue center.
B Investment center.
C Profit center.
D Cost center.

B Investment center.
This answer is correct.
An investment center is the organizational type most like an independent business because it is responsible for its own revenues, costs incurred, and capital invested. The other types of centers do not incorporate all three element

8

The costs of quality that are incurred in detecting units of product that do not conform to product specifications are referred to as
A Rework costs.
B Failure costs.
C Prevention costs.
D Appraisal costs.

D Appraisal costs
This answer is correct.
Appraisal embraces such activities as statistical quality control programs, inspection, and testing. Appraisal costs are those costs (such as test equipment maintenance and destructive testing) incurred to detect which products do not conform to specifications.

9

For a fixed-price proposal, the deliverables due on the contract are not clearly defined. As a result, the potential contractor should
A Modify the terms to account for unforeseen difficulties that may arise.
B Wait to bid until the deliverables are clearly defined.
C Submit the bid because the client’s price seems more than adequate to meet the contract requirements.
D Build in a cost escalator to adjust for materials price increases during the execution of the contract.

B Wait to bid until the deliverables are clearly defined.
This answer is correct.
Waiting to bid until the deliverables are clearly defined is necessary in order to fully understand all the costs involved and set an appropriate price.
subunit 17.7 Outline

10


The internal audit activity has undertaken an audit of the shipping and receiving department of a department store chain. The best engagement tool for this purpose most likely is
A Strategic benchmarking.
B Internal benchmarking.
C Process benchmarking.
D Competitive benchmarking.

C Process benchmarking.
This answer is correct.
Process (function) benchmarking studies operations of organizations with similar processes regardless of industry. Thus, the benchmark need not be a competitor or even a similar entity. This method may introduce new ideas that provide a significant competitive advantage. The advantage of process benchmarking is that it permits a wider choice of benchmarked organizations. Thus, the best practices for a shipping and receiving function may not be found in the same industry.
View Subunit 17.4 Outline

11

Managerial performance may be measured in many ways. For example, an internal nonfinancial measure is
A Customer satisfaction.
B Market share.
C Manufacturing lead time.
D Delivery performance.

C Manufacturing lead time.
This answer is correct.
Feedback regarding managerial performance may take the form of financial and nonfinancial measures that may be internally or externally generated. Moreover, different measures have a long-term or short-term emphasis. Examples of internal nonfinancial measures are product quality, new product development time, and manufacturing lead time (cycle time).

12

Rockford Manufacturing Corporation uses a responsibility accounting system in its operations. Which one of the following items is least likely to appear in a performance report for a manager of one of Rockford’s assembly lines?
A Repairs and maintenance.
B Materials.
C Direct labor.
D Depreciation on the manufacturing facility.

D Depreciation on the manufacturing facility.
This answer is correct.
The manager of an assembly line cannot make the decision whether or not to invest in the machinery of the line. Managers in a responsibility accounting system can only be held responsible for revenue and cost elements that are subject to their control.
View Subunit 17.1 Outline

13

Product-quality-related costs are part of a total quality control program. A product-quality-related cost incurred in detecting individual products that do not conform to specifications is an example of a(n)
A Opportunity cost.
B Appraisal cost.
C Prevention cost.
D External failure cost.

B Appraisal cost.
This answer is correct.
Quality-related costs can be subdivided into four categories: external failure costs, internal failure costs, prevention costs, and appraisal costs. Appraisal costs embrace such activities as statistical quality control programs, inspection, and testing. Thus, the cost of detecting nonconforming individual products is an appraisal cost.
View Subunit 17.5 Outline

14

A manufacturer mass produces nuts and bolts on its assembly line. The line supervisors sample every nth unit for conformance with specifications. Once a nonconforming part is detected, the machinery is shut down and adjusted. The most appropriate tool for this process is a
A ISO 9000 audit.
B Fishbone diagram.
C Statistical quality control chart.
D Cost of quality report.

C Statistical quality control chart.
This answer is correct.
Statistical quality control is a method of determining whether the shipment or production run of units lies within acceptable limits. It is also used to determine whether production processes are out of control. Statistical control charts are graphic aids for monitoring the status of any process subject to random variations.
View Subunit 17.4 Outline

15

Under the balanced scorecard concept, employee satisfaction and retention are measures used under which of the following perspectives?

A. Customer.
B. Learning and growth.
C. Financial.
D. Internal business.

B. Learning and growth.
Answer (B) is correct.
The level of employee satisfaction and retention directly relates to the learning and growth perspective.
17.2.23)

16

During which of the following tasks of a project is the satisfaction of the stakeholders confirmed?

A. Closing.
B. Monitoring.
C. Implementation.
D. Authorization.

A. Closing.
Answer (A) is correct.
The closing phase consists of confirming that completion of the project to the satisfaction of the stakeholders.
(17.7.81)

17

Which of the following techniques effectively measures improvements in product quality as a result of internal failure costs?

A. Tracking warranty expenses over time.
B. Inspection of in-process goods.
C. Recording the number of products returned over time.
D. Tracking the number of products reworked.

D. Tracking the number of products reworked.
Answer (D) is correct.
Internal failure costs occur when defective products are detected before shipment. Examples include scrap, rework, tooling changes, and downtime.
(17.5.59)

18

Jago Co. has two products that use the same manufacturing facilities and cannot be subcontracted. Each product has sufficient orders to utilize the entire manufacturing capacity. For short-run profit maximization, Jago should manufacture the product with the

A. Lower total variable manufacturing costs for the manufacturing capacity.
B. Lower total manufacturing costs for the manufacturing capacity.
C. Greater gross profit per hour of manufacturing capacity.
D. Greater contribution margin per hour of manufacturing capacity.

D. Greater contribution margin per hour of manufacturing capacity.
Answer (D) is correct.
Fixed costs do not vary in the short run. Consequently, the appropriate decision criterion considers revenues and variable costs only, for example, contribution margin per hour of manufacturing capacity (contribution margin = sales revenue – variable costs).
(17.3.34)

19

Management of a company is attempting to build a reputation as a world-class manufacturer of quality products. Which of the following measures would not be used by the firm to measure quality?

A. The number of parts shipped per day.
B. The percentage of shipments returned by customers because of poor quality.
C. The percentage of products passing quality tests the first time.
D. The number of defective parts per million.

A. The number of parts shipped per day.
Answer (A) is correct.
The number of parts shipped per day would most likely be used as a measure of the effectiveness and efficiency of shipping procedures, not the quality of the product. This measure does not consider how many of the parts are defective.
(17.2.19)

20

Common costs are

A. Direct costs.
B. Indirect costs.
C. Current costs.
D. Controllable costs.

B. Indirect costs.
Answer (B) is correct.
Common costs are the cost of products, activities, facilities, services, or operations shared by two or more cost objects. They are indirect costs because they cannot be traced to a particular cost object in an economically feasible manner. Hence, they must be allocated.

21

A segment of an organization is referred to as a profit center if it has

A. Authority to make decisions over the most significant costs of operations including the power to choose the sources of supply.
B. Authority to provide specialized support to other units within the organization.
C. Authority to make decisions affecting the major determinants of profit including the power to choose its markets and sources of supply.
D. Authority to make decisions affecting the major determinants of profit including the power to choose its markets and sources of supply and significant control over the amount of invested capital.

C. Authority to make decisions affecting the major determinants of profit including the power to choose its markets and sources of supply.
Answer (C) is correct.
A profit center is responsible for both revenues and expenses. For example, the perfume department in a department store is a profit center. The manager of a profit center usually has the authority to make decisions affecting the major determinants of profit, including the power to choose markets (revenue sources) and suppliers (costs).
(17.1.9)

22

A delivery company is implementing a system to compare the costs of purchasing and operating different vehicles in its fleet. Truck 415 is driven 125,000 miles per year at a variable cost of $0.13 per mile. Truck 415 has a capacity of 28,000 pounds and delivers 250 full loads per year. What amount is the truck’s delivery cost per pound?

A. $0.00232 per pound.
B. $1.72000 per pound.
C. $0.58036 per pound.
D. $0.00163 per pound.

A. $0.00232 per pound.
Answer (A) is correct.
The truck’s variable delivery cost per pound equals the total variable cost divided by the total pounds delivered by the truck. The truck’s mileage cost is $16,250 (125,000 miles × $0.13 per mile). The truck delivered 7,000,000 pounds (28,000 pounds × 250 loads). The truck’s variable delivery cost per pound is therefore $0.00232 per pound ($16,250 ÷ 7,000,000 pounds).
(18.3.39)

23

Black Co.’s breakeven point was $780,000. Variable expenses averaged 60% of sales, and the margin of safety was $130,000. What was Black’s contribution margin?

A. $1,300,000
B. $364,000
C. $910,000
D. $546,000

B. $364,000
Answer (B) is correct.
The contribution margin equals total sales minus total variable costs. Thus, the contribution margin ratio (CMR) equals the contribution margin divided by total sales. The margin of safety is the excess of sales over breakeven sales. Black’s total sales are therefore the sum of the breakeven amount of sales dollars and the margin of safety, or $910,000 ($780,000 + $130,000). The CMR equals 40% (1 – .6 average variable expenses). Accordingly, the contribution margin is $364,000 ($910,000 × 40%).
(18.6.101)

24

Trendy Co. produced and sold 30,000 backpacks during the last year at an average price of $25 per unit. Unit variable costs were the following:
Variable manufacturing costs

$ 9
Variable selling and administrative costs

6

Total

$15


Total fixed costs were $250,000. There was no year-end work-in-process inventory. If Trendy had spent an additional $15,000 on advertising, then sales would have increased by $30,000. If Trendy had made this investment, what change would have occurred in Trendy’s pretax profit?

A. $3,000 increase.
B. $3,000 decrease.
C. $4,200 decrease.
D. $4,200 increase.

B. $3,000 decrease.
Answer (B) is correct.
Per-unit contribution margin is $10 ($25 selling cost – $15 variable cost). Selling 30,000 backpacks thus produces a total contribution margin of $300,000 (30,000 × $10), resulting in pretax profit of $50,000 (300,000 contribution margin – $250,000 fixed cost). If Trendy spends an additional $15,000 on advertising, sales increase by $30,000. This is an increase in unit sales of 1,200 backpacks ($30,000 sale increase ÷ $25 selling price). Therefore, if Trendy increases advertising expense, it will sell 31,200 (30,000 + 1,200) backpacks, producing a contribution margin of $312,000 (31,200 backpacks × $10 unit contribution margin) and a pretax profit of $47,000 ($312,000 contribution margin – $265,000 fixed cost). Profits would therefore decrease by $3,000 ($50,000 before – $47,000 after).
(18.5.86)

25

A company that produces 10,000 units has fixed costs of $300,000, variable costs of $50 per unit, and a sales price of $85 per unit. After learning that its variable costs will increase by 20%, the company is considering an increase in production to 12,000 units. Which of the following statements is correct regarding the company’s next steps?

A. If production remains at 10,000 units, profits will decrease by $50,000.
B. If production is increased to 12,000 units, profits will increase by $50,000.
C. If production is increased to 12,000 units, profits will increase by $100,000.
D. If production remains at 10,000 units, profits will decrease by $100,000.

D. If production remains at 10,000 units, profits will decrease by $100,000.
Answer (D) is correct.
Variable costs will increase by $10 per unit ($50 × 20%). If production remains at 10,000 units, the additional cost is $100,000 (10,000 units × $10). Thus, profits will decrease by $100,000 assuming (1) the sales price and fixed costs do not change and (2) all units are sold for that sales price. The new unit contribution margin (UCM) is $25 ($85 sales price – $50 original unit VC – $10 increase in unit VC). The contribution margin given production and sale of 10,000 units is $250,000 (10,000 units × $25 UCM). The result is a $50,000 loss ($300,000 FC – $250,000 contribution margin). The original UCM was $35 ($85 sales price – $50 unit VC). Given production and sale of 10,000 units, the contribution margin is $35,000 (10,000 × $35 UCM), a gross profit of $50,000 ($350,000 contribution margin – $300,000 FC).
(18.4.63)