CHAPTER 12 : TACTICAL DECISION MAKING

1. Tactical decision making consists of choosing among alternatives with an immediate or limited end in
view. The following statement is true, except:
a. Short-run decisions often have long-run consequences. Tactical decisions are small-scale actions
that serve a larger purpose
b. Tactical decision does not serve the overall strategic goals of an organization.
c. Good example of tactical decision making: A company’s overall strategy to establish a cost
leadership by producing a component instead of buying it from suppliers.
d. Bad example for tactical decision making: Reducing the cost structure by attacking the costs that
customers particularly care about,

2. Decision makers should always maintain an ethical framework. Which one is true about ethical issue
in decision making?
a. Reaching objectives is important, but how you get there is perhaps more important. Many
managers always consider this principle.
b. There is no pressure for managers to be unethical.
c. Laying off employees is ethical to increase profits in the short run, if there is any other evidence
that supports this decision to the longer-term strategic objectives of the firm.
d. Some ethical problems can’t be avoided simply by using common sense and not focusing solely
on the short term.

3. Assume a company has 5 manufacturing engineers that supply a capacity of 10,000 engineering hours
(2,000 hours each). The cost of this activity capacity is $250,000, or $25 per hour. Suppose that this
year the company expects to use only 9,000 engineering hours for its normal business. how company
make a decision about a special order that requires 500 engineering hours? All of these following
condition are true, except:
a. The cost of engineering would be relevant. The order can be filled using unused engineering
capacity, and the resource spending is the same for each alternative ($250,000 will be spent
whether the order is accepted or not).
b. Suppose that the special order requires 1,500 engineering hours. This exceeds the resource
supply. To meet the demand, the organization would need to hire a sixth engineer.
c. Suppose that the company’s manager is considering purchasing a component used for production
instead of making it. If the component is purchased, then the demand for engineering hours will
drop from 9,000 to 7,000. the company can reduce activity capacity and resource spending by
laying off one engineer
d. For conditions c, if the demand for the engineering activity drops by less than 2,000 hours, the
increase in unused capacity is not enough to reduce resource supply and resource spending (since
engineering capacity is acquired in chunks of 2,000); in this case, the cost of the engineering
activity would not be relevant.

4. Chuckie Bob's Company is thinking of dropping Product A. A study reveals that the sales of Product A
total $400,000 per year; variable costs ratio is 70%, fixed expenses charged to the product total
$180,000. The company estimates that $80,000 of these fixed expenses will continue even if the
product is dropped. These data indicate that if Product A is dropped, the company's overall net
operating income would:
a. increase by $60,000 per year.
b. decrease by $40,000 per year.
 c. increase by $40,000 per year.
d. decrease by $20,000 per year.

5. AAB Company manufactures t-shirts and sells them normally for $6 per t-shirt. The costs to
manufacture the T-shirt are as follows:
Direct Materials $1
Direct Labor $1
Variable overhead $0.5
Fixed Overhead $1
Vriable Selling Cost $1
A Belgian company approached AAB with an order for 1,000 t-shirts at $4 per t-shirt. This order will
avoid all the variable selling costs but will require an extra $0.50 for special printing. What is the
relevant cost to produce the special order assuming the company has excess capacity?
a. $4.50
b. $5
c. $3
d. $6

6. Dino Company manufactures three products X, Y and Z, from a single raw material input. Product Z
can be sold at the split-off point for $20,000, or it can be processed further at a total cost of $10,000
and then sold for $40,000. Joint product costs total $50,000 annually. Product Z should be:
a. processed further and then sold.
b. processed further only if its share of total joint product costs is less than $10,000.
c. sold at split-off.
d. any of the above would be good alternatives.

CHAPTER 13: CAPITAL INVESTMENT DECISIONS

7. Which one is using accrual computation, not net cash flows, as a computation basis for capital decision
making:
a. Payback
b. ARR
c. NPV
d. IRR

8. These explanations about types of capital investment decisions are true, except:
a. An example of mutually exclusive projects: Monsanto’s Fibers Division decided to automate its
Pensacola, Florida, plant. If three different automated systems were being considered, this would
produce four alternatives—the current system plus the three potential new systems
b. An example of independent projects: A decision by General Motors to build a new plant for
production of the Cadillac line as well as to build a new plant for the production of its Saturn line.
c. Independent projects are projects that, if accepted or rejected, do not affect the cash flows of
other projects. Mutually exclusive projects are those projects that, if accepted, preclude the
acceptance of all other competing projects. Once one system is chosen, the other three are
excluded;
 d. In mutually exclusive projects, replacement of the old system is mandatory and not discretionary
if the firm wishes to remain in business (for example, equipment in the old system may be worn
out, making the old system not a viable alternative).

9. If management judges one project in a mutually inclusive set to be acceptable for investment,
a. all the other projects in the set are rejected.
b. only one other project in the set can be accepted.
c. all other projects in the set are also accepted.
d. only one project in the set will be rejected.

10. Hopwood Corporation bought a piece of machinery. Selected data is presented below:
Useful life 6 years
Yearly net cash flow $ 45.000
Salvage value 0
IRR 18%
Cost of capital 14%
The initial cost of the machinery was (use either present value formula [1+i]-n or present value annuity
1−[1+𝑖]−𝑛
factor formula [ ])
𝑖

a. $157,392
b. $174,992
c. $165,812
d. impossible to determine from the information given.

11. Datasoft Industries is considering the purchase of a $100,000 machine that is expected to result in a
decrease of $15,000 per year in cash expenses. This machine, which has no residual value, has an
estimated useful life of 10 years and will be depreciated on a straight-line basis. For this machine, the
accounting rate of return would be:
a. 10 percent
b. 15 percent
c. 30 percent
d. 35 percent

CHAPTER 14: INVENTORY MANAGEMENT

12. The time between when an order is placed and when it arrives is called:
a. lead time.
b. reorder point.
c. safety stock.
d. economic order quantity.

13. How does JIT avoid shutdown and process reliability?

a. Preventive maintenance to reduce machine failures.
b. Total quality control to reduce defective materials.
c. Long-term relationships with suppliers.
d. All of these choices.
14. JIT hedges against future inventory price increases by:
a. producing buffer stock.
b. having backup suppliers.
c. maintaining long-term contracts with a few suppliers.
d. outsourcing.

15. An objective of theory of constraints is:

a. increasing throughput.
b. maximizing inventory.
c. balancing order and setup costs.
d. all of these choices.

16. What is true about the rate at which raw materials are released into the plant's first operation in the
theory of constraints?
a. Ropes tie the rate at which raw materials are released.
b. The drummer rate controls the rate at which the first operation produces.
c. The drummer is any binding constraint.
d. a and b.

17. Fitzer Company purchases parts produced by a local supplier in the manufacture of their main
product. For the next year, Fitzer expects to use a total of 100,000 parts. Fitzer typically orders 5,000
units at a time. The cost of placing an order is $40 and the average annual cost of carrying one unit of
inventory is $2. Fitzer's total ordering cost is:
a. $1,250
b. $800
c. $40
d. $840

18. Hitzy Company sells an average of 10,000 bags of fertilizer daily. The lead time required to receive
fertilizer from the supplier is 3 days. What is Hitzy's reorder point?
a. 30,000 bags
b. 3,333 bags
c. 10,000 bags
d. 15,000 bags

CHAPTER 15: QUALITY COST

19. An example of a control cost is:

a. supplier evaluation and selection.
b. scrap.
c. cost of recalling products.
d. all of these choices.

20. Which of the following is an internal failure cost?

a. packaging inspection
b. lost sales
 c. rework
d. warranty costs

21. Which of the following is a method of estimating hidden quality costs?

a. partial productivity
b. market research methods
c. price recovery component
d. profile productivity measurement

22. Which of the following describes the zero defects view?

a. It permits a predetermined level of defective units to be produced.
b. It is the level where the number of defects allowed minimizes total cost.
c. It is the level where there are no defects.
d. All of these choices.

23. How can productivity be improved?

a. Using less input to produce the same output.
b. Using the same input to produce more output.
c. Improve input trade-off efficiency by using a less costly mix of inputs.
d. All of these choices.

24. Which of the following assesses the productivity efficiency for all inputs combined in order to value
change in productivity?
a. partial productivity measurement
b. profile productivity measurement
c. profit-linked productivity measurement
d. total productivity measurement

25. Deaton Company's quality cost report is to be based on the following data:
Quality engineering $ 20,000
Scrap 40,000
Process acceptance 25,000
Retesting 55,000
Design review 25,000
Inspecting and testing incoming materials 44,000
Product repair costs 76,000
Low market share 200,000

What would be the total prevention cost appearing on the quality cost report?
a. $45,000
b. $20,000
c. $485,000
d. $70,000

CHAPTER 16: LEAN ACCOUNTING, TARGET COSTING, BSC

26. Which of the following is NOT a characteristic of lean thinking?

 a. Identify the value stream for each product.
b. Make value flow without interruption.
c. Define value with the objective of minimizing costs.
d. Pursue perfection.

27. The purpose of manufacturing cells is to:

a. reduce waste and minimize inventory.
b. provide more expertise to employees.
c. allow for more time to be spent on each product.
d. minimize product inspections.

28. Which of the following are the components of product cost, from a whole-life point of view?
a. nonrecurring costs
b. manufacturing costs
c. logistics and customer-support costs
d. all of these choices
29. Which of the following are methods to reduce costs under target costing?
a. reverse reengineering
b. value analysis
c. process improvement
d. all of thee above

30. Which perspective describes the economic consequences of actions taken in the other three
perspectives?
a. financial perspective
b. customer perspective
c. internal business process perspective
d. learning and growth perspective

31. Which balanced scorecard perspective essentially relate with this question: “Can we continuously
improve and creating value?”
a. Financial
b. Learning and growth
c. Customers
d. Internal bussiness process

32. Manufacturing yield rate is a measure used in this balanced scorecard perspective …?
a. Financial
b. Learning and growth
c. Customers
d. Internal bussiness process

CHAPTER 17: ENVIRONMENTAL COST

33. 11 The ecoefficiency concept conveys the message that:

a. improving ecological and economic performance can and should be complementary.
b. improving environmental performance is a matter of competitiveness.
 c. ecoefficiency is complementary to and supportive of sustainable development.
d. all of these choices.

34. Which category of environmental costs are incurred after contaminants are produced but before they
are introduced to the environment?
a. environmental prevention costs
b. environmental detection costs
c. environmental internal failure costs
d. environmental external failure costs

35. Which of the following is an environmental external failure activity?

a. auditing environmental activities
b. using materials and energy inefficiently
c. recycling scrap
d. ecycling products