question

A lean thinking workplace organization system compromised of the following steps: sort, set in order, shine, standardize, and sustain

answer

5S

question

Focuses on activities as the fundamental cost objects. The costs of those activities become building blocks for compiling the indirect costs of products, services, and customers

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Activity-Based Costing (ABC)

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Using activity-based costing information to make decisions that incase profits while satisfying customers' needs

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Activity-Based Management (ABM)

question

Costs incurred to detect poor-quality foods/services

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Appraisal Costs

question

A simplified costing system used in lean companies in which production costs are not assigned to the units until they are finished, or even sold, thereby saving the bookkeeping steps of moving the product through the various inventory accounts

answer

Backflush Costing

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Activities and costs incurred for every match, regardless of the number of units in each batch

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Batch-Level Activities

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Over-costing some products while undercoating others

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Cost Distortion

question

A report that lists the costs incurred by the company related to quality. The costs are categorized as prevention costs, appraisal costs, internal failure costs, and external failure costs. Under TQM.

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Costs of Quality Report

question

The time that elapses between receipt of a customer order and delivery of the product/service

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Customer Response Time

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Separate manufacturing overhead rates established for each department

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Departmental Overheard Rates

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An acronym for the eight wastes: defects, overproduction, waiting, not utilizing people to their full potential, transportation, inventory, movement, excess processing

answer

DOWNTIME

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Costs incurred when the company doesn't detect poor-quality goods/services until after delivery is made to customers

answer

External Failure Costs

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Activities and costs incurred no matter how many units, batches, or products are produced in the plant

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Facility-Level Activities

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Costs incurred when the company detects and corrects poor-quality goods/services before making delivery to customers

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Internal Failure Costs

question

An inventory management philosophy that focuses on purchasing raw materials just in time for production and completing finished goods just in time for delivery to customers

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Just in Time (JIT)

question

Japanese word that means "change for the better"

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Kaizen

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A management philosophy and strategy focused on creating value for the customer by eliminating waste

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Lean Thinking

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The time that elapse between the start of production and the product's completion

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Manufacturing Cycle Time

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Activities that neither enhance the customer's image of the product/service not provide competitive advantage; aka: waste activities

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Non-Value-Added Activities

question

When overheard is allocated to every product using the same manufacturing overhead rate

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Plant-wide Overhead Rate

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A storage system used to reduce the waste of transportation and movement in which tools, materials, and equipment are stored in proximity to where they'll be used most frequently

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Point of Use Storage (POUS)

question

Costs incurred to avoid poor quality goods/services

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Prevention Costs

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Activities and costs incurred for a particular product, regardless of the number of units or batches of the same product released

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Product Level Activities

question

Refers to shifting the responsibility for quality adherence to the operators at each step in the value stream, rather than relying on the supervisors or a quality assurance department to catch errors

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Quality at the Source

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The rate of production needed to meet customer demand yet avoid overproduction

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Takt Time

question

A management philosophy of delighting customers with superior products and services by continually setting higher goals and improving the performance of every business function

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Total Quality Management (TQM)

question

Activities and costs incurred for every unit produced

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Unit-Level Activities

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Activities for which the customer is willing to pay because these activities add value to the final product/service

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Value-Added Activities

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Eliminating waste in the system by making the company's processes as effective and efficient as possible

answer

Value Engineering

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Departments incur different types of overheard and the products or jobs use the departments to a different extent

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When is Cost Distortion most likely to occur?

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Identifying the company's primary activities

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What if the first step in computing and using ABC?

question

Facility-Level

answer

What are activities incurred regardless of how many units, batches, or products are produced called?

question

Activity-Based Cost Information

answer

What does ABM use to make decisions?

question

Produce high volumes of some products and low volumes of other products

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The potential benefits of ABC/ABM are generally higher for companies that do what?

question

JIT inventory systems, production in self-contained cells, employee empowerment

answer

What generally characterizes lean operations?

question

Can be found in all sectors and not just manufacturing, can leave companies vulnerable to supply-chain disruptions, are quickly becoming the dominant business paradigm

answer

What is true of lean operations?

question

Warranty Costs

answer

What's an example of an external failure cost?

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Overcosting or undercosting a product or service

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What is a danger that the simple allocation costing system can cause?

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Less cost distortion & managers have more accurate information for business decision making

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By refining costing systems, companies can more equitably assign indirect costs (MOH) to their individual jobs, products, or services. What results from this?

question

DL hours, DL costs, machine hrs...

answer

What are examples of a "estimated total activity base?"

question

Different departments incur different amounts and types of overhead costs Different jobs or products use the departments in different ways/to a different extent

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The plant wide allocation system works well for some companies. But certain conditions exist that would create cost distortion. What are those conditions?

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1) Estimate the total manufacturing overhead rates (MOH) for the coming year 2) Select an allocation base and estimate the total amount that will be used during the year 3) Calculate the predetermined overhead rate by dividing the total estimated MOH costs by he the total estimated amount of the allocation base 4) Allocate some MOH cost to each job worked on during the year by multiplying the predetermined MOH rate by the actual amount of the allocation base used by the job

answer

What are the four basic steps for Allocating Manufacturing Overhead?

question

You use the same four basic steps used to allocate manufacturing overhead. The only difference is that you'll be calculating separate rates for each department.

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How do you determine how to allocate manufacturing overhead when using departmental overhead rates? And what's the only real difference?

question

Total Estimated Departamental Overhead Cost Pool / Total Estimated Amount of the Departmental Allocation Base

answer

How do you calculate the Departmental Overhead Rate?

question

Departmental Overhead Rate / Actual Amount of Departmental Allocation Base Used by Job

answer

How do you calculate MOH Allocated to Job?

question

Activity-Based Costing System

answer

What system reduces cost distortion to an absolute minimum and is even more defined and refined than the departmental cost allocation system?

question

Activities

answer

Instead of focusing on departments, what does ABC focus on as the fundamental cost object?

question

To more accurately estimate the cost of resources required to produce different products, to render different services, and to serve different customers

answer

Companies like Coca-Cola and American Express use ABC to do what?

question

The types of activities used by the product The extent to which the activities are used

answer

ABC generally causes the least amount of cost distortion among products because indirect costs are allocated to the products based on what?

question

The ABC systems have separate cost allocation rates for each activity identified by the company

answer

What is the main difference between the "Four Basic Steps" for ABC system vs the Departmental or Plant-wide systems?

question

When the company first identifies its primary activities and then estimates the total manufacturing overhead costs associated with each activity.

answer

Activity Cost Pools

question

MOH costs/indirect costs

answer

What are all the activity costs inside an Activity Pool?

question

The cost driver of that particular activity cost pool

answer

What must the total estimated activity allocation base be when calculating the activity cost allocation rate for ABC?

question

Total Estimated Activity Cost Pool / Total Estimated Activity Allocation Base

answer

How do you calculate Activity Cost Allocation Rate?

question

Plantwide, departamental, and ABC

answer

What are the three Cost Allocation Sytems?

question

Some companies use a classification system to establish activity cost pools because some companies have hundreds of different activities. Companies wish to keep the system as simple and manageable as possible yet refined enough to determine product costs.

answer

Cost Hierarchy

question

Unit-level activities, batch-level activities, product-level activities, tactility-level activities

answer

From largest to smallest, determine the order of the Cost Hierarchy pyramid?

question

Facility upkeep: the cost of depreciation, insurance, property tax, and maintenance of the entire production plant.

answer

Example of Facility-Level Activities

question

The cost to research, develop, design, and market new models.

answer

Example of Product-Level Activities

question

Machine Setup: the company only incurs the machine setup cost once for the entire batch

answer

Example of Batch-Level Activities

question

Inspecting and packaging each unit the company produces

answer

Example of Unit-Level Activities

question

Modify pricing and product mix decisions, for identifying opportunities to cut costs, and for routine planning and control decisions

answer

While using ABM, what are some examples that managers can use the information gleaned from ABC to do?

question

DL Hours

answer

What's an example of a volume sensitive allocation rate?

question

Plantwide overhead rates based on volume sensitive allocation bases end up allocating more cost to high-volume products and less to low-volume products.

answer

After implementing ABC, companies often realize they were overcasting their high-volume products and undercoating their low-volsume products. Why is that?

question

Not all costs are unit costs

answer

What does it mean to say that "not all indirect costs are driven by the number of units produced?"

question

Instead, many costs are incurred at the product or batch level where they can be spread over the number of units in the batch or in the product line.

answer

ABC recognized that not all indirect costs are driven by the number of units produced. What does that infer?

question

By shifting the mix of products offered away from the less profitable and toward the more profitable, companies are able to generate a higher operating income

answer

Through ABC, how are companies now earning a greater profit?

question

To find opportunities to cut costs

answer

Using ABM, how can companies pinpoint greater benefits than by just using ABC alone?

question

Fabricating component parts and assembling the units because they are necessary for changing raw materials into the products the consumer desires

answer

What are examples of value-added activities & why?

question

Storage or inventory and movements of parts from one area of the factory to another. These can be reduced/removed from the process with no ill effect on the end product or service.

answer

What are examples of waste/non-value-added activities and why?

question

Eliminating, reducing, or simplifying all non-value-added activities, and examining whether value-added activities can be improved

answer

What is the goal of value engineering?

question

the Cost-Benefit Test

answer

Like any other management tool, what test must ABC/ABM first pass in order to be implemented in a company?

question

When the benefits for adopting a certain management tool exceed the costs

answer

How can ABM/ABC pass the Cost-Benefit Test?

question

For companies in competitive markets and when the risk of cost distortion is high

answer

When are the benefits of adopting ABC/AMB higher?

question

Accounting and information system expertise and information technology such as bar coding, optical scanning, Web-based data collection, or data warehouse systems to record/compile data

answer

Companies that have -what- often find it easier to adopt and practice ABC systems?

question

Excel spreadsheets or "off-the-shelf" commercial accounting packages

answer

What are some substitutes that smaller businesses can use to replace intricate management and accounting teams when they wish to use ABC?

question

When managers don't understand costs and profits and when the cost system is outdated

answer

When does a company's product costing system need repair?

question

It is quickly becoming the dominant business paradigm and without it, a company has little chance of long-term survival in the global marketplace

answer

According to IMA, what is happening to Lean Thinking?

question

A company's operations

answer

Management accounting systems should be designed to reflect what?

question

Toyota

answer

With which company did Lean Thinking originate?

question

Employee empowerment

answer

What's a key mantra of learn thinking?

question

Uncertainty

answer

What are large inventories a response to?

question

They use cash, they hide quality problems, production bottlenecks, and obsolesce, and storying & un-storing is expensive

answer

Why are large inventories wasteful?

question

High-tech & fashion companies

answer

Companies in which two industries are exceptionally susceptible to inventory obsolescence?

question

Storing and un-storing goods and resources from and into warehouses

answer

What step of the inventory process does JIT cut?

question

These are used to identify and visually illustrate the flow of materials and information for each family of products or services the company offers, all the way from order receipt to final delivery.

answer

Value Stream Maps (VSM)

question

it illustrates the sequence of activities, communication of information, time elapsing, and build-up of inventories that is currently occurring

answer

What is a current state VSM?

question

They prepare a future state VSM

answer

What do companies do after identifying waste using a current state VSM?

question

It is used as a goal for process improvement

answer

How do companies use a future state VSM?

question

The waste of time, transportation, and movement that occurs as a result of poor plant/office layout

answer

What are some of the first wastes many companies identify on the current state VSM?

question

They group the machines in self-contained production cells. These self-contained production cells minimize the time and cost involved with physically moving parts across the factory to other departments

answer

Where does production occur in Lean companies and why?

question

It boosts morale, lowers costs, and creates a more flexible and versatile workforce. As a result individual workloads become much more balanced, leading to a more equitable distribution of work and a happier workforce.

answer

Lean companies use cross-training techniques in order to increase employee empowerment. How does this work? How does this benefit the employee and the company?

question

Higher job satisfaction and better employee morale

answer

Because of lean thinking's concept of employee empowerment, what do companies typically report of their employees?

question

So that employees at all levels of the company are compensated for improving the company's overall performance

answer

Why do lean companies often issue profit-sharing plans?

question

A place for everything and everything in its place

answer

What is the mantra of 5s?

question

An employee within the work cell will know exactly where his tools are so he can work as effectively and efficiently as possible. Moreover, it leads to fewer defects, a safer workplace, and fewer unscheduled machine repairs

answer

By following the concept of 5S, a lean company strives to have an orderly and clean workplace. How does that benefit the company and the employees?

question

So that the rate of production is the same as the rate of demand, thus reducing the wastes of over-production, waiting, and inventory

answer

Why do lean companies attempt to smooth the flow of production through the plant?

question

To make only as many units as needed by the next customer, whether that be the next machine operator or the final, external customer

answer

What's the goal of "continuous flow" in a lean company?

question

No inventory is made until a customer order is received. The customer order triggers the start of the production process and "pulls" the batch through production. Even the necessary raw materials aren't purchased until the order is received.

answer

Unlike a traditional inventory system, how does a lean inventory system work?

question

On non-value-added activities

answer

According to experts, the majoring of manufacturing cycle time is spent on what?

question

Shorter manufacturing-cycle-time can get products out before the cheaper products can ship from overseas

answer

How can short manufacturing-cycle-time protect companies from foreign companies?

question

Quick delivery time

answer

What has become a competitive weapon?

question

Minimize the time it takes for employees to set up machines & make smaller batches

answer

What are two key elements that speed of manufacturing-cycle-time and improve lean production overall?

question

Because they've got no backup stock and because any defects in materials or workmanship will slowdown or shut down production

answer

Why do lean companies want to produce their products right the first time, every time?

question

"Building in" quality

answer

Lean companies emphasize what as opposed to the traditional idea of waiting until inspection points to check products?

question

The exchange of information with suppliers and customers to reduce costs, improve quality, and speed delivery of goods & services from the company's suppliers, through the company itself, and onto the company's final customers

answer

Supply Chain Management

question

They must guarantee products to be on time and defect free

answer

What does a lean company using Supply Chain Management demand from its suppliers?

question

Because when an unfinished or unsold item is left in COGS, it leaves COGS and is sent back to either Work in Progress Inventory or Finished Goods Inventory

answer

Why is "back flush" costing called that?

question

Without any inventory buffers, they are vulnerable when problems strike suppliers or distributors

answer

Lean Production Systems aren't perfect or failsafe. Give an example of how that's true.

question

Focuses on eliminating waste & empowering employees not only to increase economic profits, but also to preserve the plant & improve the lives of all people touched by the company

answer

"Lean & Green" Operations

question

To provide customers with superior products and services

answer

What's the end goal of Total Quality Management (TQM)?

question

They can start identifying ways to improve quality while still controlling costs

answer

Under TQM, once the managers know the extent of their Costs of Quality (COQ) Report, what do they do next?

question

Prevention Costs, Appraisal Costs, Internal Failure Costs, External Failure Costs

answer

What quality-related costs fall into four categories that make up the framework for a COQ Report?

question

Variability of the production process & Complexity of product design

answer

Under Prevention Costs, what are two circumstances that can cause poor quality?

question

Automate as much as the process as possible and better train/educate employees

answer

How do you reduce variability or production design?

question

The fewer parts/processes there are, the fewer things can go wrong

answer

How do you reduce the complexity of product design?

question

When a company tests its products to check for quality

answer

When are Appraisal Costs incurred?

question

The entire cost of manufacturing + the cost of disposal would be an internal failure cost.

answer

What happens when a product cannot be reworked and must be scraped?

question

The damage to a company's reputation can cause considerable harm to future sales.

answer

What is the worst part about any External Failure Costs?

question

Of how much profit the company will lose due to having a bad reputation for poor quality

answer

What does External Failure Cost an estimate of?

question

Prevention and Appraisal Costs

answer

What are conformance costs?

question

Internal and External Failure Costs

answer

What are Non-Conformance Costs?

question

Training personnel Evaluating potential suppliers Using better materials Prevention maintenance Improved equipment Redesigning products/processes

answer

What are some examples of Prevention Costs?

question

Inspection of incoming materials Inspection at various stages of production Inspection of final products/services Product testing Cost of inspection equipment

answer

What are some examples of Appraisal Costs?

question

Production loss caused by downtime Rework Abnormal quantitates of scrap Rejected product units Disposal of rejected units Machine breakdowns

answer

What are some examples of Internal Failure Costs?

question

Lost profits from lost customers Warranty costs Service costs at customer sites Sales returns & allowances due to quality problems Product liability claims Cost of recalls

answer

What are some examples of External Failure Costs?

question

Internal Failure Costs (before)

answer

What Cost of Quality is "rejected product units?"

question

External Failure Costs (after)

answer

What Cost of Quality is "product liability claims?"

question

Prevention Costs (avoid)

answer

What Cost of Quality is "improved equipment?"

question

Prevention Costs (avoid)

answer

What Cost of Quality is "Redesigning Products/Processes?"

question

Appraisal Costs (detect)

answer

What Cost of Quality is "product testing?"

question

Appraisal Costs (detect)

answer

What Cost of Quality is "Inspection at various stages of production?"

question

Invest more in Prevention and Appraisal

answer

Most costs are in the Internal and External Failure categories. What's the best way to reduce these costs?

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