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Financial and Managerial Accounting: The Basis for Business Decisions, 12/e

Jan R. Williams, University of Tennessee
Susan F. Haka, Michigan State University
Mark S. Bettner, Bucknell University
Robert F. Meigs

Costing and the Value Chain

Multiple Choice Quiz

Please answer all questions


1	Next Generation Information Systems, Inc. pays salaries to a number of computer scientists to design and develop computer operating systems. Into which component of the value chain would this cost be classified?
		A)	Research and development and design.
		B)	Suppliers and production.
		C)	Distribution and marketing.
		D)	Customer service.


2	The elimination of non-value added activities by an organization will:
		A)	Enhance product quality.
		B)	Reduce costs without changing the product's desirability.
		C)	Increase customer satisfaction.
		D)	Reduce costs but only at the sacrifice of customer satisfaction.


3	Big University recently implemented a telephone course registration system. The system eliminated the need for numerous meetings between students and university staff, resulting in an eventual reduction in total administrative costs. This action by Big University illustrates:
		A)	Activity-based management.
		B)	Activity-based costing.
		C)	Target costing.
		D)	Quality costing.


4	Which of the following is not considered a goal of a just-in-time system?
		A)	Zero defects.
		B)	Cost savings.
		C)	Flexible manufacturing.
		D)	Numerous suppliers.


5	Wilson, Inc. is attempting to build a reputation as a world-class manufacturer of automotive brake components. Of the following four categories of cost, which would be the most damaging to Wilson, Inc.?
		A)	Prevention costs.
		B)	Appraisal costs.
		C)	Cost of internal failures.
		D)	Cost of external failures.

Use the following data for questions 6 through 8.

Superior Products, Inc. is interested in producing and selling a deluxe electric razor. Market research indicates that customers would be willing to pay $80 for such a razor and that 40,000 units could be sold each year at this price. The current cost to produce the razor is estimated to be $68.


6	Refer to the information above. If Superior Products requires a 20% return on sales to undertake production, what is the target cost for the new razor?
		A)	$16.
		B)	$54.40.
		C)	$64.
		D)	$68.


7	Refer to the information above. Superior has learned that a competitor plans to introduce a similar razor at a price of $75. If Superior requires a 20% return on sales, what is the target cost for the new razor?
		A)	$60.
		B)	$64.
		C)	$68.
		D)	$15.


8	Refer to the information above. At a price of $75, Superior's market research indicates that it can sell 42,000 units per year. Assuming Superior can reach its new target cost, how will Superior's profit at the $75 price compare to what it would have earned in the absence of the competitor's product?
		A)	Profit will be $10,000 greater.
		B)	Profit will be $10,000 smaller.
		C)	Profit will be unaffected if Superior can reach the revised target cost.
		D)	None of the above

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