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Q:
Your firm has expertise with a special type of hand-finished furniture. The learning rate is known to be 82%. If the first piece of furniture took 6 hours, estimate how long it will take to complete the third unit.
Q:
Assuming fixed costs remain constant, and a company sells more units than it produces, then income under absorption costing is less than income under variable costing
Q:
Your firm has expertise with a special type of hand-finished furniture. The learning rate is known to be 82%. If the first piece of furniture took 6 hours, use the logarithmic approach to determine how long it will take to do the third unit.
Q:
Your firm has a contract to make 20 specialty lenses for night vision equipment. The first one took 40 hours. Learning is expected at the 85% rate. How long will it take to finish all 20 units?
Q:
Assuming fixed costs remain constant, and a company produces more units than it sells, then income under absorption costing is less than income under variable costing.
Q:
The Learning-Curve Coefficients table reports that for 70 percent learning, the eighth unit has a unit time value of 0.343. Verify that table entry by use of the arithmetic method.
Q:
Assuming fixed costs remain constant, and a company produces and sells the same number of units, then income under absorption costing is less than income under variable costing.
Q:
Absorption costing is usually used for internal management purposes, and variable costing is usually used for external reporting purposes.
Q:
In the Learning-Curve Coefficients table for 70 percent learning, the sixth unit has a unit time value of 0.398. Verify that table entry by use of the logarithmic formula. Use five decimals in your work.
Q:
A company normally sells a product for $25 per unit. Variable per unit costs for this product are: $3 direct materials, $5 direct labor, and $2 variable overhead. The company is currently operating at 100% of capacity producing 30,000 units per year. Total fixed costs are $75,000 per year. The company should accept a special order for 1,000 units which would be sold for $13 per unit because the special order price exceeds variable costs.
Q:
In the logarithmic approach to learning curve calculations, you have used the formula TN = T1. (Nb). Your manager shows you a problem for which b is specified as -.18442. What learning rate does that value represent?
Q:
In the logarithmic approach to learning curve calculations, you have used the formula TN = T1. (Nb). For a problem with a 92 percent learning rate, what is b?
Q:
Variable costing separates the variable costs from fixed costs and therefore makes it easier to identify and assign control over costs.
Q:
What can cause a learning curve to vary from a smooth downward slope?
Q:
Fixed costs change in the short run depending upon management's decision to accept or reject special orders.
Q:
What cautions are in order when using learning curves?
Q:
Identify one advantage and one disadvantage of the arithmetic approach over the logarithmic approach to learning curve calculations.
Q:
If a company has excess capacity, increases in production level will increase variable production costs but not fixed production costs.
Q:
Explain how learning curves might be applied in a bid preparation application.
Q:
The traditional income statement format used for financial reporting is called the contribution margin format.
Q:
Explain how learning curves might be applied in a scheduling application.
Q:
Absorption costing is useful because it reflects the full costs that sales must exceed for the company to be profitable.
Q:
Managers should accept special orders provided the special order price exceeds the product cost per unit under absorption costing.
Q:
Two manufacturers have very different learning rates; one is under 70% while the other is over 80%. What factors might lead to such a gap?
Q:
Cost information from both absorption costing and variable costing can aid managers in pricing.
Q:
"By tradition, learning rates are defined in terms of the complements of their improvement rates." Explain.
Q:
Evaluating and rewarding managers based on absorption basis income can lead to overproduction.
Q:
What problems in scheduling can arise if adjustments for learning curve effects in operations are not made?
Q:
When setting long-term sales prices for products, the sales price must cover all costs, including fixed costs.
Q:
When comparing a 70% learning curve versus a 90% learning curve, which one results in a more rapid reduction in labor requirements? Why?
Q:
For short-term pricing decisions, absorption costing is an appropriate costing method to use.
Q:
Why do different organizations have different learning curves?
Q:
Since fixed costs remain constant in the short run, special orders should be accepted as long as the order price is greater than the variable costs.
Q:
What is the basic premise underlying the learning curve?
Q:
Variable costing is required by Generally Accepted Accounting Principles (GAAP) for financial statement purposes.
Q:
In addition to labor, to which other variables have learning curves been applied?
Q:
Describe the earliest application of learning curve concepts to industry.
Q:
When there are zero units in Beginning Finished Goods Inventory and the units produced are more than the units sold, the income will be lower under variable costing than under absorption costing.
Q:
When the number of units produced is equal to the number of units sold, net income reported under variable costing is identical to net income reported under absorption costing.
Q:
When learning curves are plotted on __________ scales, the "curves" become straight lines.
Q:
To use the table of learning curve coefficients, you must specify __________ and __________.
Q:
Assume a company had the following production costs:
Direct labor $2 per unit
Direct material $3 per unit
Variable overhead $4 per unit
Total variable $9 per unit
Fixed overhead ($50,000/10,000 units) $5 per unit
Total production cost $14 per unit
Under absorption costing, the total product cost per unit when 4,000 units are produced would be $22.50.
Q:
The __________ is the simplest approach to learning curve problems.
Q:
Under absorption costing, a company had the following unit costs when 10,000 units were produced:
Direct labor $2 per unit
Direct material $3 per unit
Variable overhead $4 per unit
Total variable $9 per unit
Fixed overhead ($50,000/10,000 units) $5 per unit
Total production cost $14 per unit
The total product cost per unit under absorption costing if 25,000 units had been produced would be $11.
Q:
Many companies link manager bonuses to income computed under absorption costing because this is how income is reported to shareholders.
Q:
Failure to consider the effects of learning can lead to __________ of labor needs.
Q:
If the learning rate for a process is 80 percent, that same process has a 20 percent __________.
Q:
The biggest problems with producing too much are lost sales and customer dissatisfaction.
Q:
__________ are based on the premise that people and organizations get better at their tasks as the tasks are repeated.
Q:
Variable costing treats fixed overhead cost as a period cost.
Q:
The earliest industrial application of learning curves came from a report by __________.
Q:
The use of absorption costing can result in misleading product cost information.
Q:
Which of the following is not a limitation of the use of learning curves?
A) Any change in personnel, design, or procedure can alter the learning curve.
B) Time measurements on early units completed must be accurate.
C) The culture of the workplace may alter the learning curve.
D) Direct labor and indirect labor may not follow the same learning curves.
E) All of these are limitations of learning curves.
Q:
Which of the following is a limitation of the use of learning curves?
A) Change in personnel, design, or procedure leave the learning curve unchanged.
B) Learning curves are applicable to services as well as to manufacturing.
C) The culture of the workplace may alter the learning curve.
D) Direct labor and indirect labor follow the same learning curves.
E) Applications of learning curves are of tactical, not strategic, importance.
Q:
Absorption costing is required under GAAP.
Q:
Which of the following is false regarding learning curves?
A) Learning curves differ from company to company.
B) Learning curves can always be used for indirect labor.
C) Changes in personnel can change the learning curve.
D) The learning curve may spike for a short time even if it is going to drop in the long run.
E) All of the above are false.
Q:
The traditional costing approach assigns all manufacturing costs to products.
Q:
Manufacturing overhead costs are those that can be traced directly to the product.
Q:
Which of the following is representative of a firm pursuing a learning curve strategy?
A) aggressive pricing policy
B) focus on productivity improvement
C) building on shared experience
D) keeping capacity growing ahead of demand
E) all of the above
Q:
Product costs consist of direct labor, direct materials, and overhead.
Q:
Companies pursuing a learning curve strategy must increase
A) employee training
B) costs
C) quality
D) volume
E) all of the above
Q:
Which one of the following courses of actions would not be taken by a firm wanting to pursue a learning curve steeper than the industry average?
A) following an aggressive pricing policy
B) focusing on continuing cost reduction
C) keeping capacity equal to demand to control costs
D) focusing on productivity improvement
E) building on shared experience
Q:
A manager is trying to estimate the appropriate learning curve for a certain job. The manager notes that the first four units had a total time of 30 minutes. Which learning curve would yield approximately this result if the first unit took 9 minutes? (Use Table E.3 cumulative coefficient)
A) 0.70
B) 0.75
C) 0.80
D) 0.85
E) 0.90
Q:
It took 60 hours to make the first unit of a product. After the second and third units were made, the learning curve was estimated to be 80%. At $10 per hour, estimate the labor bill for the fourth unit. (Use at least three decimals in the exponent if you use the logarithmic approach.)
A) $400 or less
B) from $400 to $420
C) from $420 to $440
D) from $1800 to $2000
E) over $2000
Q:
C; 2. E; 3. A; 4. D; 5. H; 6. I; 7. G; 8. F; 9. J; 10. B
Short Answer Questions
Q:
A defense contractor has just started producing engines for a new government contract. The first engine took 800 hours to produce. If the learning curve is 80%, how long will it take to produce the first 20 engines? (Use at least three decimals in the exponent if you use the logarithmic approach, or use Table E.3 cumulative coefficient)
A) less than or equal to 1000 hours
B) from 1000 to 8000 hours
C) from 8000 to 8500 hours
D) from 8500 to 10000 hours
E) 10,000 or more hours
Q:
A defense contractor has just started producing turbines for a new government contract. The first turbine took 7000 hours to produce. If the learning curve is 90%, how long will it take to produce the 10th turbine? (Use at least three decimals in the exponent if you use the logarithmic approach.)
A) less than 4800 hours
B) from 4800 to 4900 hours
C) from 4900 to 5000 hours
D) from 5000 to 5100 hours
E) over 5100 hours
Q:
Carver Packing Company reports total contribution margin of $72,000 and pretax net income of $24,000 for the current month. In the next month, the company expects sales volume to increase by 8%. The degree of operating leverage and the expected percent change in income, respectively, are:
A. 4.0 and 32%
B. 0.33 and 8%
C. 0.33 and 2.7%
D. 3.0 and 8%
E. 3.0 and 24%
Q:
The first unit of a product took 80 work days. The learning curve is estimated to be 90%. The time for the fourth unit will be about __________ work days and the time for the first four units will be about __________ work days. (Use Table E.3)
A) 51; 250
B) 250; 51
C) 65; 285
D) 51; cannot be determined
E) 65; cannot be determined
Q:
The first unit of a product took 900 hours to build and the learning curve is 90%. How long will it take to make the first 3 units? (Use Table E.3)
A) less than or equal to 2,470 hours
B) from 2,470 to 2,472 hours
C) from 2,472 to 2,475 hours
D) from 2,475 to 2,478 hours
E) from 2,478 to 2,481 hours
Q:
Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $300. Annual fixed costs are $870,000. Current sales volume is $4,200,000. Compute the current margin of safety in dollars for Flannigan Company.
A.$1,560,000.
B.$2,612,612.
C.$1,587,388.
D.$2,895,652.
E.$2,460,000.
Q:
The first unit of a product took 1,000 hours to build and the learning curve is 85%. How long will it take to make the first 5 units? (Use Table E.3)
A) less than 4,005 hours
B) from 4,005 to 4,015 hours
C) from 4,015 to 4,025 hours
D) from 4,025 to 4,035 hours
E) from 4,035 to 4,045 hours
Q:
The first unit of a product took 50 hours to build, and the learning curve is 85%. How long will it take to make the 10th unit? (Use at least three decimals in the exponent if you use the logarithmic approach.)
A) less than 24 hours
B) from 25 to 30 hours
C) from 30 to 35 hours
D) from 35 to 40 hours
E) more than 40 hours
Q:
The first unit of a product took 50 hours to build, and the learning curve is 80%. How long will it take to make the third unit? (Use at least three decimals in the exponent if you use the logarithmic approach.)
A) under 30 hours
B) about 32 hours
C) about 35 hours
D) about 50 hours
E) about 75 hours
Q:
The first unit of a product took 832 hours to build, and the learning curve is 90%. How long will it take to make the 25th unit? (Use at least three decimals in the exponent if you use the logarithmic approach.)
A) time u2264 500 hours
B) 500 < time u2264 525
C) 525 < time u2264 530
D) 530 < time u2264 550
E) time > 550
Q:
Suppose that there are two products with the same first product time. However, product A has an improvement rate of 10% while product B has an improvement rate of 20%. How much longer will it take to make the 10th unit of product A compared to product B?
A) Both will have the identical time for the 10th unit.
B) A will take 48% more time.
C) A will take 48% less time.
D) A will take 23% less time.
E) none of the above
Q:
A company negotiates a price for two aircraft that includes a reduction in labor on the second aircraft consistent with a 70% learning curve. Suppose the first aircraft took 100 hours. If the improvement rate changes to 20%, how will the total time to complete both aircraft change?
A) no change
B) -10 hours
C) + 10 hours
D) -50 hours
E) + 50 hours
Q:
McCoy Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the number of units of Product Z McCoy must sell to break even.
A.1,350.
B.6,200.
C.10,463.
D.2,700.
E.6,750.
Q:
It took 18 hours to complete the first two products with an 80% learning curve. How long did the second product take?
A) 8 hours
B) 10 hours
C) 18 hours
D) 8.1 hours
E) none of the above
Q:
The first unit of production took 10 hours with an 80% learning curve. How long will it take to complete both the first and second units?
A) 10 hours
B) 8 hours
C) 18 hours
D) none of the above
E) There is not enough information to solve the problem.