Shalom Company produces Peace Products. The management sought your help to evaluate processes to improve the company's operation and productivity. As the accountant of the firm's parent organization, your suggested a new compensation plan based on throughput performance measure as an incentive to increase productivity. You gathered the following production data: Good units manufactured Targeted units to be manufactured Value-added processing time Processing time (total hours) Compute the manufacturing cycle efficiency. 180,000 200,000 1,152,000 1,440,000
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- Joseph Fox, controller of Thorpe Company, has been in charge of a project to install an activity-based cost management system. This new system is designed to support the companys efforts to become more competitive. For the past six weeks, he and the project committee members have been identifying and defining activities, associating workers with activities, and assessing the time and resources consumed by individual activities. Now, he and the project committee are focusing on three additional implementation issues: (1) identifying activity drivers, (2) assessing value content, and (3) identifying cost drivers (root causes). Joseph has assigned a committee member the responsibilities of assessing the value content of five activities, choosing a suitable activity driver for each activity, and identifying the possible root causes of the activities. Following are the five activities with possible activity drivers: The committee member ran a regression analysis for each potential activity driver, using the method of least squares to estimate the variable and fixed cost components. In all five cases, costs were highly correlated with the potential drivers. Thus, all drivers appeared to be good candidates for assigning costs to products. The company plans to reward production managers for reducing product costs. Required: 1. What is the difference between an activity driver and a cost driver? In answering the question, describe the purpose of each type of driver. 2. For each activity, assess the value content and classify each activity as value-added or non-value-added (justify the classification). Identify some possible root causes of each activity, and describe how this knowledge can be used to improve activity performance. For purposes of discussion, assume that the value-added activities are not performed with perfect efficiency. 3. Describe the behavior that each activity driver will encourage, and evaluate the suitability of that behavior for the companys objective of becoming more competitive.The management of Wheeler Company has decided to develop cost formulas for its major overhead activities. Wheeler uses a highly automated manufacturing process, and power costs are a significant manufacturing cost. Cost analysts have decided that power costs are mixed; thus, they must be broken into their fixed and variable elements so that the cost behavior of the power usage activity can be properly described. Machine hours have been selected as the activity driver for power costs. The following data for the past eight quarters have been collected: Required: 1. Prepare a scattergraph by plotting power costs against machine hours. Does the scatter-graph show a linear relationship between machine hours and power cost? 2. Using the high and low points, compute a power cost formula. 3. Use the method of least squares to compute a power cost formula. Evaluate the coefficient of determination. 4. Rerun the regression and drop the point (20,000; 26,000) as an outlier. Compare the results from this regression to those for the regression in Requirement 3. Which is better?Tom Young, vice president of Dunn Company (a producer of plastic products), has been supervising the implementation of an activity-based cost management system. One of Toms objectives is to improve process efficiency by improving the activities that define the processes. To illustrate the potential of the new system to the president, Tom has decided to focus on two processes: production and customer service. Within each process, one activity will be selected for improvement: molding for production and sustaining engineering for customer service. (Sustaining engineers are responsible for redesigning products based on customer needs and feedback.) Value-added standards are identified for each activity. For molding, the value-added standard calls for nine pounds per mold. (Although the products differ in shape and function, their size, as measured by weight, is uniform.) The value-added standard is based on the elimination of all waste due to defective molds (materials is by far the major cost for the molding activity). The standard price for molding is 15 per pound. For sustaining engineering, the standard is 60 percent of current practical activity capacity. This standard is based on the fact that about 40 percent of the complaints have to do with design features that could have been avoided or anticipated by the company. Current practical capacity (the first year) is defined by the following requirements: 18,000 engineering hours for each product group that has been on the market or in development for five years or less, and 7,200 hours per product group of more than five years. Four product groups have less than five years experience, and 10 product groups have more. There are 72 engineers, each paid a salary of 70,000. Each engineer can provide 2,000 hours of service per year. There are no other significant costs for the engineering activity. For the first year, actual pounds used for molding were 25 percent above the level called for by the value-added standard; engineering usage was 138,000 hours. There were 240,000 units of output produced. Tom and the operational managers have selected some improvement measures that promise to reduce non-value-added activity usage by 30 percent in the second year. Selected actual results achieved for the second year are as follows: The actual prices paid per pound and per engineering hour are identical to the standard or budgeted prices. Required: 1. For the first year, calculate the non-value-added usage and costs for molding and sustaining engineering. Also, calculate the cost of unused capacity for the engineering activity. 2. Using the targeted reduction, establish kaizen standards for molding and engineering (for the second year). 3. Using the kaizen standards prepared in Requirement 2, compute the second-year usage variances, expressed in both physical and financial measures, for molding and engineering. (For engineering, explain why it is necessary to compare actual resource usage with the kaizen standard.) Comment on the companys ability to achieve its targeted reductions. In particular, discuss what measures the company must take to capture any realized reductions in resource usage.
- Communication The controller of New Wave Sounds Inc. prepared the following product profitability report for management, using activity-based costing methods for allocating both the factory overhead and the marketing expenses. As such, the controller has confidence in the accuracy of this report. In addition, the controller interviewed the vice president of marketing, who provided the following insight into the companys three products: The home theater speakers are an older product that is highly recognized in the marketplace. The wireless speakers are a new product that was just recently launched. The wireless headphones are a new technology that has no competition in the marketplace, and it is hoped that they will become an important future addition to the companys product portfolio. Initial indications are that the product is well received by customers. The controller believes that the manufacturing costs for all three products are in line with expectations. Based on the information provided: 1. Calculate the ratio of gross profit to sales and the ratio of operating income to sales for each product. 2. Write a brief (one-page) memo using the product profitability report and the calculations in (a) to make recommendations to management with respect to strategies for the three products.In 20x2, Choctaw Company implements a new process affecting labor and materials. The following reported data are provided to evaluate the effect on the companys productivity: Required: 1. Calculate the productivity profile for 20x1. 2. Calculate the productivity profile for 20x2, and comment on the effect of the new production and assembly process. 3. What if the labor hours used in 20x2 were 112,500? What does comparison of the 20x1 and 20x2 profiles now communicate?Kagle design engineers are in the process of developing a new green product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed 550 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit-and activity-based accounting information (made possible by a recent pilot study producing the activity-based data). Unit-based system: Variable conversion activity rate: 100 per direct labor hour Material usage rate: 20 per part ABC system: Labor usage: 15 per direct labor hour Material usage (direct materials): 20 per part Machining: 75 per machine hour Purchasing activity: 150 per purchase order Setup activity: 3,000 per setup hour Warranty activity: 500 per returned unit (usually requires extensive rework) Customer repair cost: 25 per repair hour (average) Required: 1. Select the lower-cost design using unit-based costing. Are logistical and post-purchase activities considered in this analysis? 2. Select the lower-cost design using ABC analysis. Explain why the analysis differs from the unit-based analysis. 3. What if the post-purchase cost was an environmental contaminant and amounted to 10 per unit for Design A and 40 per unit for Design B? Assume that the environmental cost is borne by society. Now which is the better design?
- The following situations describe scenarios that could use managerial accounting information: a. The manager of High Times Restaurant wants to determine the price to charge for various lunch plates. b. By evaluating the cost of leftover materials, the plant manager of a precision tool facility wants to determine how effectively the plant is being run. c. The division controller of West Coast Supplies needs to determine the cost of products left in inventory. d. The manager of the Maintenance Department of a large manufacturing company wants to plan next years anticipated expenditures. For each situation, discuss how managerial accounting information could be used.Two departments within Cougar Gear Inc. are Production and Sales. Each department has a unique scorecard, as follows: The Production Department scorecard focuses on the learning and growth and internal processes perspectives. The Sales Department scorecard focuses on the learning and growth and customer perspectives. Both scorecards have the learning and growth performance metrics of median training hours per employee and average employee tenure. The Production scorecard has the unique metrics of production time per unit and number of production shutdowns. The Sales scorecard has the unique metrics of percentage of customers who shop again and online customer satisfaction rating. The performance targets for each metric are shown in the tan boxes just under the performance metrics. The actual achieved metrics are shown in the red boxes just below the tan boxes. When evaluating both departments, Cougar Gears management looks at the median training hours per employee and average employee tenure metrics and subsequently decides to give the Sales Department a large bonus while giving the Production Department a minimal bonus. a. Determine and define the type of cognitive bias Cougar Gears management has exhibited in this instance. b. Determine which department would have received the larger bonus had the companys management not been biased in the evaluation. c. Discuss one advantage and one disadvantage of using unique balanced scorecards for different departments or divisions of a company.John Thomas, vice president of Mallett Company (a producer of a variety of plastic products), has been supervising the implementation of an ABC management system. John wants to improve process efficiency by improving the activities that define the processes. To illustrate the potential of the new system to the president, John has decided to focus on two processes: production and customer service. Within each process, one activity will be selected for improvement: materials usage for production and sustaining engineering for customer service (sustaining engineers are responsible for redesigning products based on customer needs and feedback). Value-added standards are identified for each activity. For materials usage, the value-added standard calls for six pounds per unit of output (the products differ in shape and function, but their weight is uniform). The value-added standard is based on the elimination of all waste due to defective molds. The standard price of materials is 5 per pound. For sustaining engineering, the standard is 58% of current practical activity capacity. This standard is based on the fact that about 42% of the complaints have to do with design features that could have been avoided or anticipated by the company. Current practical capacity (at the end of 20X1) is defined by the following requirements: 6,000 engineering hours for each product group that has been on the market or in development for 5 years or less and 2,400 hours per product group of more than 5 years. Four product groups have less than 5 years experience, and 10 product groups have more. Each of the 24 engineers is paid a salary of 60,000. Each engineer can provide 2,000 hours of service per year. No other significant costs are incurred for the engineering activity. Actual materials usage for 20X1 was 25% above the level called for by the value-added standard; engineering usage was 46,000 hours. A total of 80,000 units of output were produced. John and the operational managers have selected some improvement measures that promise to reduce nonvalue-added activity usage by 40% in 20X2. Selected actual results achieved for 20X2 are as follows: The actual prices paid for materials and engineering hours are identical to the standard or budgeted prices. Required: 1. For 20X1, calculate the nonvalue-added usage and costs for materials usage and sustaining engineering. 2. CONCEPTUAL CONNECTION Using the budgeted improvements, calculate the expected activity usage levels for 20X2. Now, compute the 20X2 usage variances (the difference between the expected and actual values), expressed in both physical and financial measures, for materials and engineering. Comment on the companys ability to achieve its targeted reductions. In particular, discuss what measures the company must take to capture any realized reductions in resource usage.
- Evans, Inc., has a unit-based costing system. Evanss Miami plant produces 10 different electronic products. The demand for each product is about the same. Although they differ in complexity, each product uses about the same labor time and materials. The plant has used direct labor hours for years to assign overhead to products. To help design engineers understand the assumed cost relationships, the Cost Accounting Department developed the following cost equation. (The equation describes the relationship between total manufacturing costs and direct labor hours; the equation is supported by a coefficient of determination of 60 percent.) Y=5,000,000+30X,whereX=directlaborhours The variable rate of 30 is broken down as follows: Because of competitive pressures, product engineering was given the charge to redesign products to reduce the total cost of manufacturing. Using the above cost relationships, product engineering adopted the strategy of redesigning to reduce direct labor content. As each design was completed, an engineering change order was cut, triggering a series of events such as design approval, vendor selection, bill of materials update, redrawing of schematic, test runs, changes in setup procedures, development of new inspection procedures, and so on. After one year of design changes, the normal volume of direct labor was reduced from 250,000 hours to 200,000 hours, with the same number of products being produced. Although each product differs in its labor content, the redesign efforts reduced the labor content for all products. On average, the labor content per unit of product dropped from 1.25 hours per unit to one hour per unit. Fixed overhead, however, increased from 5,000,000 to 6,600,000 per year. Suppose that a consultant was hired to explain the increase in fixed overhead costs. The consultants study revealed that the 30 per hour rate captured the unit-level variable costs; however, the cost behavior of other activities was quite different. For example, setting up equipment is a step-fixed cost, where each step is 2,000 setup hours, costing 90,000. The study also revealed that the cost of receiving goods is a function of the number of different components. This activity has a variable cost of 2,000 per component type and a fixed cost that follows a step-cost pattern. The step is defined by 20 components with a cost of 50,000 per step. Assume also that the consultant indicated that the design adopted by the engineers increased the demand for setups from 20,000 setup hours to 40,000 setup hours and the number of different components from 100 to 250. The demand for other non-unit-level activities remained unchanged. The consultant also recommended that management take a look at a rejected design for its products. This rejected design increased direct labor content from 250,000 hours to 260,000 hours, decreased the demand for setups from 20,000 hours to 10,000 hours, and decreased the demand for purchasing from 100 component types to 75 component types, while the demand for all other activities remained unchanged. Required: 1. Using normal volume, compute the manufacturing cost per labor hour before the year of design changes. What is the cost per unit of an average product? 2. Using normal volume after the one year of design changes, compute the manufacturing cost per hour. What is the cost per unit of an average product? 3. Before considering the consultants study, what do you think is the most likely explanation for the failure of the design changes to reduce manufacturing costs? Now use the information from the consultants study to explain the increase in the average cost per unit of product. What changes would you suggest to improve Evanss efforts to reduce costs? 4. Explain why the consultant recommended a second look at a rejected design. Provide computational support. What does this tell you about the strategic importance of cost management?Congratulations! You have been hired as a Cost Accountant by Sundial, Inc., which produces sunglasses. Your duties include developing cost standards for materials and labor, designing and implementing cost accounting systems, defining various product and operational costs, analyzing production costs and recommending changes. When the trial period is over, you will have a performance review to demonstrate the completed tasks and gained knowledge. There are two models of sunglasses in Sundial’s assortment — Essenz and CoolBe. The sunglasses have the following characteristics: Essenz CoolBe Selling price per unit $160 $160 Variable cost per unit $60 $80 Expected units sold per year 60,000 40,000 The total fixed costs per year for the company are $2,208,000. What is the anticipated level of profits for the expected sales volumes? Assuming that the product mix is the same at the break-even point, compute the break-even point. If the product sales…Please help