(TCO 11) Delays in customer-response time occur because of
uncertainty about when customers will order products.
unused capacity which impedes average manufacturing time.
customers’ response in paying invoices on time.
overemphasis on measuring time drivers.
(TCO 11) A liability claim is an example of
external failure costs.
internal failure costs.
(TCO 11) Regal Products has a budget of $900,000 in 20X3 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units. Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company’s average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories. What is the net change in the budget of prevention costs if the procedures are automated in 20X6? Will management agree with the changes?
$138,000 increase; no
$78,000 increase; yes
$60,000 increase; no
$60,000 decrease; yes
(TCO 12) Which of the following categories of costs are important when managing inventories of goods for sale, according to the authors of the text?
Purchasing, ordering, supply, spoilage, and opportunity
Purchasing, stockout carrying, ordering, and quality
Buying, holding, invoicing, opportunity, and investment
Supply, obsolescence, holding, stockout, and transportation-in
(TCO 12) Quality costs include
(TCO 12) Which of the following statements about the economic-order-quantity decision model is FALSE?
It assumes ordering costs and carrying costs are relevant.
It assumes stockout costs are irrelevant if no stockouts occur.
It assumes purchasing costs are relevant when the cost per unit changes due to the quantity ordered.
It assumes quality costs are irrelevant if quality is unaffected by the number of units purchased.
(TCO 12) Increases in the carrying cost and decreases in the ordering cost per purchase order result in
smaller relevant total costs.
larger relevant total costs.
smaller EOQ amounts.
larger EOQ amounts.
(TCO 12) Liberty Celebrations, Inc., manufactures a line of flags. The annual demand for its flag display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory is $1.60, and the cost to initiate a production run is $30. There are no flag displays on hand but Liberty had scheduled 60 equal production runs of the display sets for the coming year, the first of which is to be run immediately. Liberty Celebrations has 250 business days per year. Assume that sales occur uniformly throughout the year and that production is instantaneous. If Liberty Celebrations does not maintain a safety stock, the estimated total carrying cost for the flag displays for the coming year is