CHAPTER 5 Activity-Based Costing and Cost Management Systems

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "CHAPTER 5 Activity-Based Costing and Cost Management Systems"

Transcription

1 CHAPTER 5 -Based Costing and Cost Management Systems ANSWERS TO REVIEW QUESTIONS 5-5 The four broad categories of activities identified in an activity-based costing system are as follows: (a) (b) (c) (d) Unit-level activities: Must be done for each unit of production. Batch-level activities: Must be performed for each batch of products. Product-sustaining activities: Needed to support an entire product line. Facility-level (or general-operations-level) activities: Required for the entire production process to occur Non-value-added costs are the costs of activities that can be eliminated with no deterioration of product quality, performance, or perceived value. Some examples of potential non-value-added costs are as follows: time spent unnecessarily moving raw materials, work in process, or finished goods between operations; unnecessary time spent by raw materials or work in process waiting for the next operation; storage of unnecessary inventories of raw materials, parts, or partially completed products; costs incurred in repairing defective units when the defects could be eliminated with better quality control systems Time is spent in a manufacturing process in the following five ways: process time, inspection time, move time, waiting time, and storage time. There is the potential for non-value-added costs in any of these five areas. Inefficient or unnecessary steps in the production process may result in non-value-added costs. Other potential non-value-added activities include unnecessary inspections, unnecessary movement of materials and goods between operations, unnecessary time spent waiting by materials or partially completed goods, and excessive inventory in storage Tipoffs that a new product-costing system may be needed include the following (eight required): (a) Line managers do not believe the product costs reported by the accounting department. 1

2 (b) Marketing personnel are unwilling to use reported product costs in making pricing decisions. (c) Complex products that are difficult to manufacture are reported to be very profitable although they are not priced at a premium. (d) Product-line profit margins are difficult to explain. (e) Sales are increasing, but profits are declining. (f) Line managers suggest that apparently profitable products be dropped. (g) Marketing or production managers are using "bootleg costing systems," which are informal systems they designed, often on a personal computer. (h) Some products that have reported high profit margins are not sold by competitors. (i) The firm seems to have captured a highly profitable product niche all for itself. (j) Overhead rates are very high, and increasing over time. (k) Product lines are diverse. (l) Direct labor is a small percentage of total costs. (m) The results of bids are difficult to explain. (n) Competitors' high-volume products seem to be priced unrealistically low. (o) The accounting department spends significant amounts of time on special costing projects to support bids or pricing decisions. SOLUTIONS TO PROBLEMS PROBLEM 5-33 (35 MINUTES) 1. -based costing results in improved costing accuracy for two reasons. First, companies that use ABC are not limited to a single driver when allocating costs to products and activities. Not all costs vary with units, and ABC allows users to select a host of nonunit-level cost drivers. Second, consumption ratios often differ greatly among activities. No single cost driver will accurately assign costs for all activities in this situation. 2. Allocation of administrative cost based on billable hours: E-commerce consulting: 2,400 6,000 = 40%; $381,760 x 40% = $152,704 Information systems: 3,600 6,000 = 60%; $381,760 x 60% = $229,056 2 Information

3 E-Commerce Consulting Systems Services Billings: 3,600 hours x $140 $504,000 2,400 hours x $140 $336,000 Less: Professional staff cost: 3,600 hours x (180,000) $50 2,400 hours x (120,000) $50 Administrative (152,704) ( 229,056) cost. Income $ 63,296 $ 94,944 Income bilings % 18.84% 3. -based application rates: Cost Driver Application Rate Staff support $207, clients = $690 per client In-house computing 145,000 5,000 computer hours (CH) = $29 per CH Miscellaneous office charges 29,760 1,200 client transactions (CT) = $24.80 per CT Staff support, in-house computing, and miscellaneous office charges of e-commerce consulting and information systems services: E-Commerce Consulting Information Systems Services Staff support: 240 clients x $690. $165, clients x $690. $ 41,400 In-house computing: 2,900 CH x $29. 84,100 2,100 CH x $29. 60,900 Miscellaneous office charges: 480 CT x $ , CT x $ ,856 Total. $120,156 $261,604 3

4 Profitability e-commerce consulting and information systems services: Information E-Commerce Consulting Systems Services Billings: 3,600 hours x $140. $504,000 2,400 hours x $140. $336,000 Less: Professional staff cost: 3,600 hours x (180,000) $50 2,400 hours x (120,000) $50 Administrative (120,156) ( 261,604) cost. Income. $ 95,844 $ 62,396 Income bilings % 12.38% 4. Yes, his attitude should change. Even though both services are needed and professionals are paid the same rate, the income percentages show that e-commerce consulting provides a higher return per sales dollar than information systems services (28.53% vs %). Thus, all other things being equal, professionals should spend more time with e-commerce. 5. Probably not. Although both services produce an attractive return for Clark and Shiffer, the firm is experiencing a very tight labor market and will likely have trouble finding qualified help. In addition, the professional staff is currently overworked, which would probably limit the services available to new clients. PROBLEM 5-34 (30 MINUTES) 1. Deluxe manufacturing overhead cost: 32,000 machine hours x $80 = $2,560,000 $2,560,000 16,000 units = $160 per unit Executive manufacturing overhead cost: 45,000 machine hours x $80 = $3,600,000 $3,600,000 30,000 units = $120 per unit Deluxe Executive Direct material. $ 40 $ 65 Direct labor Manufacturing overhead Unit cost $225 $210 4

5 2. -based application rates: Cost Driver Application Rate Manufacturing setups $1,344, setups (SU) = $8,400 per SU Machine processing 3,696,000 Product shipping 1,120,000 77,000 machine hours (MH) 350 outgoing shipments (OS) = $48 per MH = $3,200 per OS Manufacturing setup, machine processing, and product shipping costs of a Deluxe unit and an Executive unit: Deluxe Executive Manufacturing setups: 100 SU x $8,400. $ 840, SU x $8,400. $ 504,000 Machine processing: 32,000 MH x $48. 1,536,000 45,000 MH x $48. 2,160,000 Product shipping: 200 OS x $3, , OS x $3, ,000 Total. $3,016,000 $3,144,000 Production volume (units). 16,000 30,000 Cost per unit. $188.50* $104.80** * $3,016,000 16,000 units = $ ** $3,144,000 30,000 units = $

6 The manufactured cost of a Deluxe cabinet is $253.50, and the manufactured cost of an Executive cabinet is $ The calculations follow: Deluxe Executive Direct material $ $ Direct labor Manufacturing setup, machine processing, and outgoing shipments Total cost. $ $ The Deluxe storage cabinet is undercosted. The use of machine hours produced a unit cost of $225; in contrast, the more accurate activity-based-costing approach shows a unit cost of $ The difference between these two amounts is $ Cost distortion: The Deluxe cabinet product line is undercosted by $456,000, and the Executive cabinet product line is overcosted by $456,000. Supporting calculations follow: Deluxe Executive $28.50* 16,000 = $456,000 $(15.20) 30,000 = $(456,000) *$ $ $ $ No, the discount is not advisable. The regular selling price of $270, when compared against the more accurate ABC cost figure, shows that each sale provides a profit to the firm of $16.50 ($ $253.50). However, a $30 discount will actually produce a loss of $13.50 ($ $240.00), and the more units that are sold, the larger the loss. Notice that with the less-accurate, machine-hour-based figure ($225), the marketing manager will be misled, believing that each discounted unit sold would boost income by $15 ($240 - $225). 6

7 CHAPTER 6 -Based Management and Today s Advanced Manufacturing Environment ANSWERS TO REVIEW QUESTIONS 6-13 Four techniques for reducing or eliminating non-value-added costs that result from non-value-added activities are as follows: (a) reduction (b) elimination (c) selection (d) sharing 6-20 Continuous improvement may be defined as the constant effort to eliminate waste, reduce response time, simplify the design of both products and processes, and improve product quality and customer service. The price down/cost down concept is the tendency of prices to fall over the life cycle of a newly introduced product. Moreover, if prices are to fall over time, manufacturers must continually reduce costs. Target costing is the process of designing a product, and the processes used to produce it, in order to achieve a manufacturing cost that will enable the firm to make a profit when the product is sold at an estimated market-driven price. This estimated price is called the target price, the desired profit margin is called the target profit, and the cost at which the product must be manufactured is called the target cost. Value engineering (or value analysis) is a cost-reduction and process-improvement technique that utilizes information collected about a product's design and production processes and then examines attributes of the design and processes to identify candidates for improvement. The attributes examined include such characteristics as part diversity and process complexity. Kaizen costing is the process of cost reduction during the manufacturing phase of an existing product. The Japanese word kaizen refers to continual and gradual improvement through small betterment activities, rather than large or radical improvement made through innovation or large investments in technology. 7

8 6-21 Kaizen costing is most consistent with the old saying "slow and steady wins the race." Kaizen costing is the process of cost reduction during the manufacturing phase of an existing product. The Japanese word kaizen refers to continual and gradual improvement through small betterment activities, rather than large or radical improvement made through innovation or large investments in technology. PROBLEM 6-43 (25 MINUTES) 1. Annual financial impact: Return on released funds [($7,200,000 - $1,200,000) x 12%]... $720,000 Savings in insurance and property taxes... 54,000 Lease revenue (30,000 square feet x 75% x $4)... 90,000 Depreciation on remodeled facilities ($1,200, years)... (120,000) Savings in warranty and repair costs... 50,000 Salary savings*... 60,000 Added stockout costs... (140,000) Savings from JIT system... $714,000 * Note: The cost of the two transferred employees is excluded because Pacific Rim Enterprises will continue to have these individuals on the payroll. 2. With a just-in-time purchasing system, companies avoid costly build-ups of raw-material inventories because materials and parts are ordered only when needed. The suppliers under such a system are highly reliable and deliver quality goods on time. Thus, despite the absence of inventories that firms can rely on if needed, the likelihood of excessive stockouts is fairly low. 3. Long-term contracts under a JIT purchasing system set tight standards with respect to the quality of materials purchased. The quality is high, which reduces the need for incoming inspections. 4. Under a traditional purchasing system, goods are purchased (frequently in large lots) and then placed in inventory until used. In contrast, with JIT, costly inventories are avoided by having the materials arive just-in-time to be issued to production. Materials are therefore purchased only when needed, which often translates into numerous small acquisitions throughout the period. PROBLEM 6-47 (30 MINUTES) 8

9 1. -based management refers to the use of activity-based costing to improve operations and eliminate non-value-added costs. These costs arise from non-value-added activities operations that are either (a) unnecessary and dispensable or (b) necessary but inefficient and improvable. Put simply, such activities can be eliminated without harming overall quality, performance, or perceived value. 2. Cost of non-value-added activities: Warehousing: 550 moves x $80 a. $44,000 Outgoing shipments: 250 shipments x $30 b 7,500 Total $51,500 a Warehousing: $720,000 9,000 inventory moves = $80 per move b Outgoing shipments: $450,000 15,000 shipments = $30 per shipment 3. Extra inventory moves in the warehouse may be caused by books being shelved (i.e., stocked) incorrectly, poor planning for the arrival and subsequent placement/stocking of new titles, and other similar situations. Extra shipments would likely be the result of errors in order entry and order filling, goods lost in transit, or damaged merchandise being sent to customers. 4. As the following figures show, the elimination of non-value-added activities allows ReadersNet.Com to achieve the target-cost percentage for software only. Cost-Driver Quantity % Books % Software Cost-Driver Quantity: Books Cost-Driver Quantity: Software Incoming receipts. 2,000 70% 30% 1, Warehousing. 9,000 80% 20% 6,650* 1,800 Outgoing shipments 15,000 25% 75% 3,750 11,000** * (9,000 moves x 80%) 550 ** (15,000 shipments x 75%) 250 PROBLEM 6-47 (CONTINUED) Books Software 9

10 Incoming receipts: 1,400 purchase orders x $300*... $ 420, purchase orders x $ $180,000 Warehousing: 6,650 moves x $ ,000 1,800 moves x $ ,000 Outgoing shipments: 3,750 shipments x $ ,500 11,000 shipments x $ ,000 Total cost... $1,064,500 $654,000 Cost as a percentage of sales: $1,064,500 $7,800, % $654,000 $5,200, % *Incoming receipts: $600,000 2,000 purchase orders = $300 per purchase order 5. Additional cost cutting of $50,500 is needed for books to achieve the 13% target of $1,014,000 ($7,800,000 x 13%). Tools that the company might use include customer-profitability analysis, target costing, value engineering, kaizen costing, benchmarking, and reengineering. Problem 6-48 (30 minutes) 1. Contribution margin of lost sales (20,000) units: Revenue... $36.00* Variable costs: Costs of goods sold... $13.50* Selling and administrative * Total variable costs... $16.50 Unit contribution margin... $19.50 Volume of lost sales... 20,000 Total contribution margin of lost sales... $(390,000) Overtime premiums... (120,000) Rental savings ,000 Rental income from owned warehouse (12,000 sq. ft..75 $4.50)... 40,500 Elimination of insurance... 42,000 Opportunity cost of funds released from inventory investment: Investment in inventory... $1,800,000 Interest before taxes ,000 0 Estimated before-tax dollar savings... $ 112,500 10

11 *Total amount on the income statement 900,000 units The cost of overtime premiums, $120,000, is less than the additional forgone contribution margin if the overtime is not used (15,000 units $19.50 = $292,500). Therefore, the overtime should be used. 2. Conditions that should exist in order for a company to install just-in-time inventory methods successfully include the following: Top management must be committed and provide the necessary leadership support in order to ensure a companywide coordinated effort. A detailed system for integrating the sequential operations of the manufacturing process needs to be developed and implemented. Raw materials must arrive when needed for each subassembly so that the production process functions smoothly. Accurate sales forecasts are needed for effective finished-goods planning and production scheduling. Products should be designed to use standardized parts to reduce manufacturing time and decrease costs. Reliable vendors who can deliver quality raw materials on time with minimum lead time must be identified. 11

CHAPTER 20 INVENTORY MANAGEMENT, JUST-IN-TIME, AND SIMPLIFIED COSTING METHODS. D 26, 400 = = 12 orders per year EOQ 2, 200

CHAPTER 20 INVENTORY MANAGEMENT, JUST-IN-TIME, AND SIMPLIFIED COSTING METHODS. D 26, 400 = = 12 orders per year EOQ 2, 200 20-18 EOQ for a retailer. CHAPTER 20 INVENTORY MANAGEMENT, JUST-IN-TIME, AND SIMPLIFIED COSTING METHODS 1. D = 26,400 yards per year, P = $165, C = 20% $9 = $1.80 per yard per year EOQ 2 DP 2 26, 400 $165

More information

15.963 Management Accounting and Control Spring 2007

15.963 Management Accounting and Control Spring 2007 MIT OpenCourseWare http://ocw.mit.edu 15.963 Management Accounting and Control Spring 2007 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms. 15.963 Managerial

More information

I. INTRODUCTION A. There are two aspects to an effective operating system: 1. Design 2. Control.

I. INTRODUCTION A. There are two aspects to an effective operating system: 1. Design 2. Control. Operations Control Chapter 8 CHAPTER OUTLINE I. INTRODUCTION A. There are two aspects to an effective operating system: 1. Design 2. Control. B. Effective operations control is attained by applying the

More information

Activity-Based Costing

Activity-Based Costing 4-1 Activity-Based Costing Managerial Accounting Fifth Edition Weygandt Kimmel Kieso 4-2 4-3 study objectives 1. Recognize the difference between traditional costing and activity-based costing. 2. Identify

More information

Chapter 6 Cost Allocation and Activity-Based Costing

Chapter 6 Cost Allocation and Activity-Based Costing Chapter 6 Cost Allocation and Activity-Based Costing QUESTIONS 1. Indirect costs are allocated to (1) provide information for decision making, (2) reduce frivolous use of common resources, (3) encourage

More information

Learning Objectives. PRODUCT COSTING SYSTEMS Traditional Product Costing Systems Activity-Based Costing Systems

Learning Objectives. PRODUCT COSTING SYSTEMS Traditional Product Costing Systems Activity-Based Costing Systems PRODUCT COSTING SYSTEMS Traditional Product Costing Systems Activity-Based Costing Systems Learning Objectives Learn the mechanics of product costing systems Understand cost distortions in traditional

More information

Product costs based on the activity-based costing system

Product costs based on the activity-based costing system 5-52 Volume-based Costing Versus ABC 1. (1) Target price $279.00 $294.00 $199.50 (2) Manufacturing cost (1) 150% $186.00 $196.00 $133.00 Prime cost - 70.00-126.40-75.00 Overhead cost per unit $116.00 $

More information

Introduction to Activity-Based Costing

Introduction to Activity-Based Costing 9-197-076 REV: JULY 5, 2001 ROBERT S. KAPLAN Introduction to Activity-Based Costing In this note, we introduce activity-based cost (ABC) systems. The motivation for ABC systems is simple to articulate.

More information

- 1 - Cost Drivers. Product Diversity - Difference in product size, product complexity, size of batches and set-up times cause product diversity.

- 1 - Cost Drivers. Product Diversity - Difference in product size, product complexity, size of batches and set-up times cause product diversity. - 1 - Traditional Cost Accounting It arbitrarily allocates overheads to the cost objects. Total Company s overhead is allocated based on volume based measure e.g. labour hours, machine hours. Here the

More information

Chapter 6. Inventory Control Models

Chapter 6. Inventory Control Models Chapter 6 Inventory Control Models Learning Objectives After completing this chapter, students will be able to: 1. Understand the importance of inventory control and ABC analysis. 2. Use the economic order

More information

EXERCISE 3-23 (10 MINUTES)

EXERCISE 3-23 (10 MINUTES) Solution to Chapter 3 E3 23,24,26,28,30, E3 38,31,33, P3 45 EXERCISE 3-23 (10 MINUTES) 1. Process 2. Job-order 3. Job-order (contracts or projects) 4. Process 5. Process 6. Job-order 7. Process 8. Job-order

More information

THE FOUNDATIONAL 15. 2. The overhead cost assignments to Products Y and Z are as follows:

THE FOUNDATIONAL 15. 2. The overhead cost assignments to Products Y and Z are as follows: THE FOUNDATIONAL 15 1. The plantwide overhead rate is computed as follows: Total estimated overhead cost (a)... $684,000 Total expected direct labor-hours (b)... 12,000 DLHs Predetermined overhead rate

More information

Slide 1. Slide 2. Slide 3. 5.2 Activity Based Costing. Overhead Rate. Cost of Idle Capacity POHR =

Slide 1. Slide 2. Slide 3. 5.2 Activity Based Costing. Overhead Rate. Cost of Idle Capacity POHR = Slide 1 5.2 Activity Based Costing o Supplemental costing method added to traditional costing methods o Non-manufacturing as well as manufacturing costs may be assigned to products o Some manufacturing

More information

CHAPTER 20 INVENTORY MANAGEMENT, JUST-IN-TIME, AND SIMPLIFIED COSTING METHODS

CHAPTER 20 INVENTORY MANAGEMENT, JUST-IN-TIME, AND SIMPLIFIED COSTING METHODS CHAPTER 20 INVENTORY MANAGEMENT, JUST-IN-TIME, AND SIMPLIFIED COSTING METHODS 20-1 Cost of goods sold (in retail organizations) or direct materials costs (in organizations with a manufacturing function)

More information

UG802: COST MEASUREMENT AND COST ANALYSIS

UG802: COST MEASUREMENT AND COST ANALYSIS UG802: COST MEASUREMENT AND COST ANALYSIS April 6, 2014 Kanokporn Rienkhemaniyom, Ph.D. Managerial Accounting - Overview Definition: A profession that involves partnering in management decision making,

More information

Chapter 2 Global E-Business and Collaboration

Chapter 2 Global E-Business and Collaboration 1 Chapter 2 Global E-Business and Collaboration LEARNING TRACK 1: SYSTEMS FROM A FUNCTIONAL PERSPECTIVE We will start by describing systems using a functional perspective because this is the most straightforward

More information

Standard Costs Overview

Standard Costs Overview Overview 1. What are standard Costs. 2. Why do we set standard costs? 3. How do we set the standards? 4. Calculating Variances: DM and DL - Disaggregating variances into price and volume. - Difference

More information

Functional Area Systems Lecture 5

Functional Area Systems Lecture 5 ACS-1803 Introduction to Information Systems Instructor: David Tenjo Functional Area Systems Lecture 5 1 1. ACCOUNTING TRANSACTION SYSTEMS 2 1 Business Transaction Cycles 3 Business Transaction Cycles

More information

EXERCISES. = $62 per direct labor hour

EXERCISES. = $62 per direct labor hour Ex. 26 1 (FIN MAN); Ex. 11 1 (MAN) ($215,000/4,000) 2,200 = $118,250 EXERCISES Ex. 26 2 (FIN MAN); Ex. 11 2 (MAN) $139,500 a. Single Plantwide Factory Overhead Rate = 2,250 direct labor hours* = $62 per

More information

Accounting Building Business Skills. Learning Objectives: Learning Objectives: Paul D. Kimmel. Chapter Thirteen: Cost Accounting Systems

Accounting Building Business Skills. Learning Objectives: Learning Objectives: Paul D. Kimmel. Chapter Thirteen: Cost Accounting Systems Accounting Building Business Skills Paul D. Kimmel Chapter Thirteen: Cost Accounting Systems PowerPoint presentation by Kate Wynn-Williams University of Otago, Dunedin 2003 John Wiley & Sons Australia,

More information

Chapter 9: Inventories. Raw materials and consumables Finished goods Work in Progress Variants of valuation at historical cost other valuation rules

Chapter 9: Inventories. Raw materials and consumables Finished goods Work in Progress Variants of valuation at historical cost other valuation rules Chapter 9: Inventories Raw materials and consumables Finished goods Work in Progress Variants of valuation at historical cost other valuation rules 1 Characteristics of Inventories belong to current assets

More information

HR Cycle & Production Cycle

HR Cycle & Production Cycle HR Cycle & Production Cycle Topik Bahasan Human Resource Cycle Production Cycle Sumber Materi Romney / Steinbart, Accounting Information Systems, 9th Edition ch.11-12, Prentice Hall The Human Resources

More information

Activity-Based Costing: A Tool to Aid Decision Making

Activity-Based Costing: A Tool to Aid Decision Making Activity-Based Costing: A Tool to Aid Decision Making 121. Cosgrove Company manufactures two products, Product K-7 and Product L-15. Product L-15 is of fairly recent origin, having been developed as an

More information

Society of Certified Management Accountants of Sri Lanka

Society of Certified Management Accountants of Sri Lanka Copyright Reserved Serial No Technician Stage March 2009 Examination Examination Date : 28 th March 2009 Number of Pages : 06 Examination Time: 9.30a:m.- 12.30p:m. Number of Questions: 05 Instructions

More information

Activity-based costing

Activity-based costing Activity-based costing The traditional methods of cost allocation, cost apportionment and absorption into products are being challenged by some writers who claim that much information given to management

More information

Primary Logistics Activities

Primary Logistics Activities 1 TOPIC 1: OVERVIEW OF BUSINESS LOGISTICS AND PLANNING Topic Outcomes: You should be able: 1. Define logistics 2. Define activity mix in logistics business 3. Determine the importance of business logistics

More information

CHAPTER19. Acct202. Managerial Accounting 19-1

CHAPTER19. Acct202. Managerial Accounting 19-1 CHAPTER19 Managerial Accounting Acct202 19-1 PreviewofCHAPTER19 19-2 Managerial Accounting Basics Managerial accounting, a field of accounting that provides economic and financial information for managers

More information

How to Overcome 3 Common Inventory Replenishmemt Challenges

How to Overcome 3 Common Inventory Replenishmemt Challenges How to Overcome 3 Common Inventory Replenishmemt Challenges This white paper explains the 4 different types of replenishment models used by wholesalers and distributors to avoid making costly inventory

More information

7 Deadly Sins. A publication of:

7 Deadly Sins. A publication of: 7 Deadly Sins A publication of: TABLE OF CONTENTS Intro 3 Sin # 1 : Transport and Handling 4 Sin # 2 : Inventory 7 Sin # 3 : Movement 9 Sin # 4 : Waiting Time 11 Sin # 5 : Overproduction 13 Sin # 6 : Over-processing

More information

Job Manager for Metal Fabrication

Job Manager for Metal Fabrication Job Manager for Metal Fabrication What makes Metal Fabrication unique? First, most metal shops are building to unique specifications. The Jobs are service type jobs, not production type jobs. Mass Production

More information

Multiple Choice Questions (45%)

Multiple Choice Questions (45%) Multiple Choice Questions (45%) Choose the Correct Answer 1. The following information was taken from XYZ Company s accounting records for the year ended December 31, 2014: Increase in raw materials inventory

More information

MATERIALS MANAGEMENT. Module 9 July 22, 2014

MATERIALS MANAGEMENT. Module 9 July 22, 2014 MATERIALS MANAGEMENT Module 9 July 22, 2014 Inventories and their Management Inventories =? New Car Inventory Sitting in Parking Lots Types of Inventory 1. Materials A. Raw material B. WIP C. Finished

More information

STUDENT NAME: STUDENT ID:

STUDENT NAME: STUDENT ID: MIDTERM EXAM AFM 102: Introduction to Managerial Accounting Sections 001, 002, 003 and 004 February 29, 2008: 4:30 6:00 PM Instructors: Rob Ducharme; Thomas Vance STUDENT NAME: STUDENT ID: TUTORIAL: Room:

More information

By: ATEEKH UR REHMAN 12-1

By: ATEEKH UR REHMAN 12-1 12 Inventory Management By: ATEEKH UR REHMAN 12-1 Inventory Management The objective of inventory management is to strike a balance between inventory investment and customer service 12-2 Importance of

More information

1) Cost objects include: A) customers B) departments C) products D) All of these answers are correct.

1) Cost objects include: A) customers B) departments C) products D) All of these answers are correct. Preliminary Test of Cost Accounting Knowledge--Does not affect your grade! Name Mark one letter for each question response. Note that in some cases there are options like ʺD) Both A and C are correct.ʺ

More information

MGT402 - Cost & Management Accounting Glossary For Final Term Exam Preparation

MGT402 - Cost & Management Accounting Glossary For Final Term Exam Preparation MGT402 - Cost & Management Accounting Glossary For Final Term Exam Preparation Glossary Absorption costing : Includes all manufacturing costs --- including direct materials, direct labor, and both variable

More information

CHAPTER 9 WHAT IS REPORTED AS INVENTORY? WHAT IS INVENTORY? COST OF GOODS SOLD AND INVENTORY

CHAPTER 9 WHAT IS REPORTED AS INVENTORY? WHAT IS INVENTORY? COST OF GOODS SOLD AND INVENTORY CHAPTER 9 COST OF GOODS AND INVENTORY 1 WHAT IS REPORTED AS INVENTORY? Inventory represents goods that are either manufactured or purchased for resale in the normal course of business Inventory is classified

More information

Job Manager for Tool and Die Shops

Job Manager for Tool and Die Shops Job Manager for Tool and Die Shops What makes Tool and Die Shops unique? First, most orders are for a unique Tool or Die. No two Jobs are alike. The Job is a one of a kind job, not a mass production type

More information

What is Lean Manufacturing?

What is Lean Manufacturing? What is Lean Manufacturing? Levantar March 2012 www.levantar.co.uk info@levantar.co.uk Lean Guides for other sectors are available on our website www.levantar.co.uk e.g. Lean Office, Lean Legal, Lean Engineering

More information

Financial Statements for Manufacturing Businesses

Financial Statements for Manufacturing Businesses Management Accounting 31 Financial Statements for Manufacturing Businesses Importance of Financial Statements Accounting plays a critical role in decision-making. Accounting provides the financial framework

More information

Introduction to Cost Accounting

Introduction to Cost Accounting Introduction to Cost Accounting Learning Objectives By the end of this chapter, you should be able to: Define cost accounting. State the five areas in which cost accounting can assist management. List

More information

Effective Inventory Analysis

Effective Inventory Analysis Effective Inventory Analysis By Jon Schreibfeder EIM Effective Inventory Management, Inc. This report is the sixth in a series of white papers designed to help forward-thinking distributors increase efficiency,

More information

Activity-Based Costing (ABC)

Activity-Based Costing (ABC) CHAPTER 24 Activity-Based Costing (ABC) Meaning Activity-Based Costing (ABC) is that costing in which costs begin with tracing of activities and then to producing the product. In other words, it is the

More information

SECTION IX. ACCOUNTING FOR INVENTORY

SECTION IX. ACCOUNTING FOR INVENTORY SECTION IX. ACCOUNTING FOR INVENTORY A. IAS 2 IAS 2 Inventories pertains to inventories that are: Assets held for sale in the ordinary course of business (finished goods and merchandise); Assets in the

More information

Activity-based costing ( ABC ) is widely recognized

Activity-based costing ( ABC ) is widely recognized Implementing Activity-Based Costing in the Banking Industry By Jeffrey Witherite and Il-woon Kim Benefits include the proper costing of transactions, the ability to trace specific costs to bank customers

More information

Course Title: Cost Accounting for Decision Making

Course Title: Cost Accounting for Decision Making Course Title: Cost Accounting for Decision Making Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum 1 Learning

More information

Inventory Management, Just-in-Time, and Backflush Costing

Inventory Management, Just-in-Time, and Backflush Costing Inventory Management, Just-in-Time, and Backflush Costing Inventory Management in Retail Organizations Inventory Management is planning coordinating controlling activities related to the flow of inventory

More information

Teaching Manual-Operation Management. Gunadarma University. Week : 9 Subject : INVENTORY MANAGEMENT Content :

Teaching Manual-Operation Management. Gunadarma University. Week : 9 Subject : INVENTORY MANAGEMENT Content : Week : 9 Subject : INVENTORY MANAGEMENT Content : WHY INVENTORY a. One of the most expensive assets of many companies representing as much as 50% of total invested capital b. Operations managers must balance

More information

1. Managerial accounting: A. is governed by generally accepted accounting principles. B. places emphasis on special-purpose information.

1. Managerial accounting: A. is governed by generally accepted accounting principles. B. places emphasis on special-purpose information. 1. Managerial accounting: A. is governed by generally accepted accounting principles. B. places emphasis on special-purpose information. C. pertains to the entity as a whole and is highly aggregated. D.

More information

ACC 561 Week 3 Assignment Practice Quiz

ACC 561 Week 3 Assignment Practice Quiz ACC 561 Week 3 Assignment Practice Quiz To purchase this material click below link http://www.assignmentcloud.com/acc-561/acc-561- Week-3-Assignment-Practice-Quiz Multiple Choice Question 37 A major purpose

More information

Understand How and Where Computers are used in Manufacturing

Understand How and Where Computers are used in Manufacturing H. RESOURCE MANAGEMENT AND MANUFACTURING COMPUTING H1 Understand How and Where Computers are used in Manufacturing H1.1 List possible computer applications in manufacturing processes. Performance Objective:

More information

Activity-Based Costing: Demonstration Problems and Practice Quiz

Activity-Based Costing: Demonstration Problems and Practice Quiz Demonstration Problem 1 Activity-Based Costing: Demonstration Problems and Practice Quiz ABC Manufacturing, Inc. produces three gadgets (Ace, Best, and Champ) in two departments, Machining and Assembly.

More information

Grow your business with an integrated rental and financial system from Microsoft Dynamics

Grow your business with an integrated rental and financial system from Microsoft Dynamics Grow your business with an integrated rental and financial system from Microsoft Dynamics Microsoft Dynamics NAV gives the rental industry an integrated, real-time rental management solution with flexible

More information

ERP Course: Production and Materials Management Reading: Chapter 6 from Mary Sumner

ERP Course: Production and Materials Management Reading: Chapter 6 from Mary Sumner ERP Course: Production and Materials Management Reading: Chapter 6 from Mary Sumner Peter Dolog dolog [at] cs [dot] aau [dot] dk 5.2.03 Information Systems September 16, 2008 2 Sales Finished and packaged

More information

Identifying Relevant Costs

Identifying Relevant Costs Relevant Costs for Decision Making Identifying Relevant Costs A relevant cost is a cost that differs between alternatives. An avoidable cost can be eliminated, in whole or in part, by choosing one alternative

More information

David Larimer, Matt Sewell, and Brian Jobe are college

David Larimer, Matt Sewell, and Brian Jobe are college 18 -Based Costing and Other Cost Management Tools Learning Objectives 1 2 3 4 Develop activity-based costs (ABC) Use activity-based management (ABM) to achieve target costs Describe a just-in-time (JIT)

More information

Chapter 4. Systems Design: Process Costing. Types of Costing Systems Used to Determine Product Costs

Chapter 4. Systems Design: Process Costing. Types of Costing Systems Used to Determine Product Costs 4-1 Types of Systems Used to Determine Product Costs Chapter 4 Process Job-order Systems Design: Many units of a single, homogeneous product flow evenly through a continuous production process. One unit

More information

BSCM Sample TEST. CPIM(Certified In Production & Inventory Management) - 1 -

BSCM Sample TEST. CPIM(Certified In Production & Inventory Management) - 1 - BSCM Sample TEST. 1. Which of the following demand fulfillment approaches typically provides the longest delivery time? A) Engineer-to-order. B) Make-to-order. C) Assemble-to-order. D) Make-to-stock. 2.

More information

Difference: Net Operating Income Increase or (Decrease) Total If Racing Bikes Are Dropped

Difference: Net Operating Income Increase or (Decrease) Total If Racing Bikes Are Dropped Exercise 13-2 1. No, production and sale of the racing bikes should not be discontinued. If the racing bikes were discontinued, then the operating income for the company as a whole would decrease by $11,000

More information

Lean Manufacturing. Value must be externally focused. Only what your customers perceive as value is important.

Lean Manufacturing. Value must be externally focused. Only what your customers perceive as value is important. Introduction Lean Manufacturing Lean Manufacturing is a systematic approach to identifying and eliminating waste through continuous improvement. Lean is about doing more with less: Less time, inventory,

More information

Chapter 10 Budgetary Planning and Control

Chapter 10 Budgetary Planning and Control Chapter 10 Budgetary Planning and Control QUESTIONS 1. Budgets are useful in the planning process because they increase communication and coordination. Also, they force managers to carefully consider their

More information

Cost Justification of a Warehouse Management System: A Five Step Plan

Cost Justification of a Warehouse Management System: A Five Step Plan WHITE PAPER Cost Justification of a Warehouse Management System: A Five Step Plan Introduction Executive Summary Warehouse management systems (WMS) have become essential to the smooth and efficient operation

More information

Sample Test for Management Accounting

Sample Test for Management Accounting Sample Test for Management Accounting Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. Which phrase best describes the current role of the

More information

Top reasons why ekanban should be a key element of your lean manufacturing plan

Top reasons why ekanban should be a key element of your lean manufacturing plan Infor ERP Top reasons why ekanban should be a key element of your lean manufacturing plan Table of contents Executive summary... 3 Reactive manufacturing model... 4 Move over manual Kanban... 6 Electronic

More information

Universidad del Turabo MANA 705 DL Workshop Eight W8_8_3 Aggregate Planning, Material Requirement Planning, and Capacity Planning

Universidad del Turabo MANA 705 DL Workshop Eight W8_8_3 Aggregate Planning, Material Requirement Planning, and Capacity Planning Aggregate, Material Requirement, and Capacity Topic: Aggregate, Material Requirement, and Capacity Slide 1 Welcome to Workshop Eight presentation: Aggregate planning, material requirement planning, and

More information

OVERHEAD, GENERAL, AND ADMINISTRATIVE COSTS

OVERHEAD, GENERAL, AND ADMINISTRATIVE COSTS Chapter Nine OVERHEAD, GENERAL, AND ADMINISTRATIVE COSTS INTRODUCTION Much of the attention to improvements in the factory goes to the most obvious source of cost, the actual production process, which

More information

Course 2: Financial Planning and Forecasting

Course 2: Financial Planning and Forecasting Excellence in Financial Management Course 2: Financial Planning and Forecasting Prepared by: Matt H. Evans, CPA, CMA, CFM This course provides a basic understanding of how to prepare a financial plan (budgeted

More information

CHAPTER 10 In-Class QUIZ

CHAPTER 10 In-Class QUIZ CHAPTER 10 In-Class QUIZ 1. A mixed cost function has a constant component of $20,000. If the total cost is $60,000 and the independent variable has the value 200, what is the value of the slope coefficient?

More information

MANAGEMENT OF OPERATIONS STOCK MANAGEMENT

MANAGEMENT OF OPERATIONS STOCK MANAGEMENT MANAGEMENT OF OPERATIONS STOCK MANAGEMENT LEARNING INTENTIONS AND SUCCESS CRITERIA LEARNING INTENTIONS: I understand what is involved in effective stock management. SUCCESS CRITERIA: I can describe the

More information

Introduction To Cost Accounting

Introduction To Cost Accounting Page 1 Introduction To Cost Accounting 15.501/516 Accounting Spring 2004 Professor S. Roychowdhury Sloan School of Management Massachusetts Institute of Technology April 28, 2004 6 Outline Overview of

More information

Chapter 12. Introduction to Value Determination

Chapter 12. Introduction to Value Determination Chapter 12 Value Theory, Highest and Best Use Analysis, and the Cost Approach 11/17/2005 FIN4777 - Special Topics in Real Estate - Professor Rui Yao 1 Introduction to Value Determination Price is usually

More information

Chapter 8 Pricing Decisions, Analyzing Customer Profitability, and Activity-Based Pricing

Chapter 8 Pricing Decisions, Analyzing Customer Profitability, and Activity-Based Pricing Chapter 8 Pricing Decisions, Analyzing Customer Profitability, and Activity-Based Pricing QUESTIONS 1. The manager would estimate the quantity that could be sold at various prices. The quantities would

More information

Course Title: Cost Terminology and Job Costing

Course Title: Cost Terminology and Job Costing Course Title: Cost Terminology and Job Costing Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum 1 Learning Outcomes

More information

The Training Material on Supply Chain Collaboration & Logistics Solutions has been produced under Project Sustainable Human Resource Development in

The Training Material on Supply Chain Collaboration & Logistics Solutions has been produced under Project Sustainable Human Resource Development in The Training Material on Supply Chain Collaboration & Logistics Solutions has been produced under Project Sustainable Human Resource Development in Logistic Services for ASEAN Member States with the support

More information

Chapter 011 Project Analysis and Evaluation

Chapter 011 Project Analysis and Evaluation Multiple Choice Questions 1. Forecasting risk is defined as the: a. possibility that some proposed projects will be rejected. b. process of estimating future cash flows relative to a project. C. possibility

More information

CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING

CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING 6-1 The budgeting cycle includes the following elements: a. Planning the performance of the company as a whole as well as planning the performance

More information

Warehousing. Learning Objectives

Warehousing. Learning Objectives Warehousing Learning Objectives By the end of this chapter, you should be able to: List the functions of a warehouse. State the primary objectives of a warehouse. List the categories of resources found

More information

Manufacturing Flow Management

Manufacturing Flow Management Manufacturing Flow Management Distribution D Distribution Authorized to Department of Defense and U.S. DoD Contractors Only Aim High Fly - Fight - Win Supply Chain Management Processes Information Flow

More information

REVIEW FOR FINAL EXAM, ACCT-2302 (SAC)

REVIEW FOR FINAL EXAM, ACCT-2302 (SAC) REVIEW FOR FINAL EXAM, ACCT-2302 (SAC) CHAPTER 13 1. Corporate Organization: a. Application for incorporation. b. State grants Charter or Articles of Incorporation. c. By-laws: rules and procedures of

More information

Chapter 16 Inventory Management and Control

Chapter 16 Inventory Management and Control Chapter 16 Inventory Management and Control We shall be interested primarily in the control of material in manufacturing. Actually, we are concerned with the control of the flow of material from a raw

More information

OPERATIONAL CASE STUDY PRACTICE EXAM ANSWERS

OPERATIONAL CASE STUDY PRACTICE EXAM ANSWERS OPERATIONAL CASE STUDY PRACTICE EXAM ANSWERS The Practice Exam can be viewed at http://www.pearsonvue.com/cima/practiceexams/ These answers have been provided by CIMA for information purposes only. The

More information

Comprehensive Business Budgeting

Comprehensive Business Budgeting Management Accounting 137 Comprehensive Business Budgeting Goals and Objectives Profit planning, commonly called master budgeting or comprehensive business budgeting, is one of the more important techniques

More information

Master Budget and Responsibility Accounting. Chapter 6

Master Budget and Responsibility Accounting. Chapter 6 Master Budget and Responsibility Accounting Chapter 6 Learning Objectives Understand what a master budget is and explain its benefits Describe the advantages of budgets Prepare the operating budget and

More information

ACG 3024 Accounting for Non-Financial Majors Homework Portfolio Study Guide

ACG 3024 Accounting for Non-Financial Majors Homework Portfolio Study Guide ACG 3024 Accounting for Non-Financial Majors Homework Portfolio Study Guide These are similar questions with the answers to help guide you when preparing the Homework Portfolio that you will upload to

More information

COST AND MANAGEMENT ACCOUNTING

COST AND MANAGEMENT ACCOUNTING EXECUTIVE PROGRAMME COST AND MANAGEMENT ACCOUNTING SAMPLE TEST PAPER (This test paper is for practice and self study only and not to be sent to the institute) Time allowed: 3 hours Maximum marks : 100

More information

Economic Ordering Quantities: A Practical Cost Reduction Strategy for Inventory Management

Economic Ordering Quantities: A Practical Cost Reduction Strategy for Inventory Management Economic Ordering Quantities: A Practical Cost Reduction Strategy for Inventory Management By Todd Duell Abstract Inventory management is an important concern for all managers in all types of businesses.

More information

LECTURE 11 INTRODUCTION TO STRATEGIC MANAGEMENT ACCOUNTING

LECTURE 11 INTRODUCTION TO STRATEGIC MANAGEMENT ACCOUNTING LECTURE 11 INTRODUCTION TO STRATEGIC MANAGEMENT ACCOUNTING Deficiencies of Traditional Management Accounting Thus far covered cost accounting referred to as traditional management accounting techniques.

More information

Chapter 24 Stock Handling and Inventory Control. Section 24.1 The Stock Handling Process Section 24.2 Inventory Control

Chapter 24 Stock Handling and Inventory Control. Section 24.1 The Stock Handling Process Section 24.2 Inventory Control Chapter 24 Stock Handling and Inventory Control Section 24.1 The Stock Handling Process Section 24.2 Inventory Control The Stock Handling Process Key Terms receiving record blind check method direct check

More information

tutor2u Stock Control The Importance of Managing Stocks AS & A2 Business Studies PowerPoint Presentations 2005

tutor2u Stock Control The Importance of Managing Stocks AS & A2 Business Studies PowerPoint Presentations 2005 Stock Control The Importance of Managing Stocks AS & A2 Business Studies PowerPoint Presentations 2005 What Are Stocks? Three main categories of stocks Raw Materials Work in Progress Finished Goods Types

More information

Intermediate Accounting

Intermediate Accounting Intermediate Accounting Thomas H. Beechy Schulich School of Business, York University Joan E. D. Conrod Faculty of Management, Dalhousie University PowerPoint slides by: Bruce W. MacLean, Faculty of Management,

More information

Lesson 5: Inventory. 5.1 Introduction. 5.2 Manufacturer or Retailer?

Lesson 5: Inventory. 5.1 Introduction. 5.2 Manufacturer or Retailer? Lesson 5: Inventory 5.1 Introduction Whether it is a brick and mortar or digital store, for many businesses, inventory management is a key cog of their operations. Managing inventory is an important key

More information

QUESTIONS. Investors, creditors, and other users external to the organization. Assist external users in making investment, credit, and other decisions

QUESTIONS. Investors, creditors, and other users external to the organization. Assist external users in making investment, credit, and other decisions Chapter 14 Managerial Accounting Concepts and Principles QUESTIONS 1. The managerial accountant plays an important role in preparing the information necessary for effective planning and control decisions.

More information

Ch.1 Purchasing & Supply Chain Management

Ch.1 Purchasing & Supply Chain Management Module 1 : Purchasing Process. Ch.1 Purchasing & Supply Chain Management Edited by Dr. Seung Hyun Lee (Ph.D., CPM) IEMS Research Center, E-mail : lkangsan@iems.co.kr Definition of Supply Chain. Definition

More information

Activity-Based Costing for E-Business

Activity-Based Costing for E-Business Narcyz Roztocki School of Business, State University of New York at New Paltz 75 South Manheim Boulevard, New Paltz, NY 12561 USA Abstract-This paper proposes the use of Activity-Based Costing to more

More information

Dr. Baldwin AC 314 Chapter 2

Dr. Baldwin AC 314 Chapter 2 Dr. Baldwin AC 314 Chapter 2 2-16 (15 min.) Computing and interpreting manufacturing unit costs. 1. (in millions) Supreme Deluxe Regular Total Direct material cost $ 84.00 $ 54.00 $ 62.00 $200.00 Direct

More information

RAPID REVIEW Chapter Content

RAPID REVIEW Chapter Content RAPID REVIEW BASIC ACCOUNTING EQUATION (Chapter 2) INVENTORY (Chapters 5 and 6) Basic Equation Assets Owner s Equity Expanded Owner s Owner s Assets Equation = Liabilities Capital Drawing Revenues Debit

More information

Budgetary Planning. Managerial Accounting Fifth Edition Weygandt Kimmel Kieso. Page 9-2

Budgetary Planning. Managerial Accounting Fifth Edition Weygandt Kimmel Kieso. Page 9-2 9-1 Budgetary Planning Managerial Accounting Fifth Edition Weygandt Kimmel Kieso 9-2 study objectives 1. Indicate the benefits of budgeting. 2. State the essentials of effective budgeting. 3. Identify

More information