AGGARWAL EDUCATION CENTRE PVT. LTD.

D-223, Laxmi Chamber, Laxmi Nagar, Delhi-92. Ph. NO:- 22543053, 9811374374.

TQM
Q1:- A Manufacturing company purchase one of the components required for the
manufactures of product from two sources ,viz, suppliers, A and supplier B .The price quoted by supplier a is Rs. 15.00 per hundred numbers of the component and is found that on the average 3% of the total receipt from this source is defective. The corresponding quotation from supplier B is Rs .14.50 but the defectives would go up to 5% For the total supply .If the defectives are not detected ,they are utilised in production causing a damage of Rs. 15.00 per hundred components. The company intends to introduce a system of inspection for the components on receipt which would cost Rs.2.00 per hundred components such an inspection will, however ,be able to detect only 90% of the defective components received .No payment will be made for components found to be defective in inspection. Offer your opinion ,(a) whether inspection at the point of receipt is justified ,and (b) which of the two suppliers should be asked to supply. Assume total requirements of components to be 10,000 numbers. --------------------------------------------------------------------------------------------------------------------

Q2:- Your company plans to operate department D at normal capacity next year
producing one lakh units of product P. Assuming no defective works, these units can be manufactured in 2.5 lakhs labour hours at a cost of Rs.0.50 per hour .factory overhead would amount to Rs.1,50,000 of which Rs. 50,000 would be fixed five units of materials can be purchased in two qualities ; a high quality at Rs. 1.05 per unit or lower quality at 0.80 per unit. Under expected conditions, using high quality materials 10%of the work will be defective requiring complete replacement of the material additional labor costs and variable overhead. scrap materials recovered from defectives production could be sold at Re. 0.30 per unit of high quality material used. As an alternative to this arrangement .the use of the lower quality material is being considered but this would require an extra operation to be performed on it. An additional machine and tooling would be needed at a cost of Rs. 3,000 per annum. The additional operation would take half an hour for each unit of product P produced ,not talking defective work into a account. It is estimated that 20% of the work would be defective all of which would be defective all of which would require complete replacement. Scrap material from the lower quality material could be sold for Rs. 5,000. Present information to management indicating the more profitable course of action. --------------------------------------------------------------------------------------------------------------------

Q3:- A company manufactures a single product ,the estimated costs of which are as
follow: Direct Materials Rs 10 each Direct wages 8 hours at Rs. 0.50 per hour Overhead absorption rate Rs. 1.75 per hour.(50% fixed overhead included) During this period 1,000 units will be produced and sold as follow:900 Units of first at Rs.30 each 50 units of second at Rs.20 each 50 units of third at Rs.10 each Present information to management showing the loss due to the production of inferior units. By reprocessing the inferior units taking the full reprocessing time of a further 8 hours and adding further material Costing Rs.4 per unit these, “seconds” and “thirds” can be converted into firsts. Present information to the management. Answer:- Loss 600. -------------------------------------------------------------------------------------------------------------------

TQM- Cost Indifference
Q4:-A company manufactures a component on batches of 2000 each .Each component
is tested before being sent to the agents for sales. Each components can be tested at the factory at a cost of Rs.25 .If any component is found to be defective, it can be rectified by spending Rs.200. In view of the large demand for the components and the sophisticated system of manufactures ,a proposal came up that the practice of pre-testing of the components be dispensed with to save costs. In that event, any defective component is received back from the customer under warranty ,the cost of rectification and redispatch will be Rs.400 per component. States at what percentage of manufacture of components will the company find it cheaper to pre-test each component. Answer: - 250 Components (12.5%) --------------------------------------------------------------------------------------------------------------------

Q5:- Carlon Ltd. makes and sells a single product, the unit specifications are as
follows:Direct Materials X Machine Time Machine cost per gross hour 8 Sq meter at Rs. 40 per square meter 0.6 Running hours Rs. 400

Selling price

Rs. 1,000

Carlon Ltd. requires to fulfill orders for 5,000 product units per period. There are no stocks of product units at the beginning or end of the period under review. The stock level of material X remains unchanged throughout the period. Carlon Ltd. is planning to implement a Quality Management Programme (QMP) the following additional information regarding costs and revenues are given as of now and after implementation of Quality Management Programme.

Before the implementation of QMP

After the implementation

1: 5% of incoming material from suppliers scrapped due 1: Reduced to 3%. to poor receipt and storage organization 2: 4% of materials X input to the machine process is 2: Reduced to 2.5% wasted due to processing problems. 3: Inspection and Storage of Material X costs Re. 1 per 3 No change in the unit square meter purchased. rate. 4: Inspection during the production cycle, calibration 4 Reduction of 40% of the checks on inspection equipment vendor rating and other existing cost. checks cost Rs. 2,50,000 per period. 5 Production Qty. is increased to allow for the 5 Reduction to 7.5% downgrading of 12.5% of the production units at the final inspection stage. Down graded units are sold as seconds at a discount of 30% of the standard selling price. 6: Production Quantity is increased to allow for return 6 Reduction to 2.5% from customers (these are replaced free of charge) due to specification failure and account for 5% of units actually delivered to customer. 7: Product liability and other claims by customers is 7: Reduction to 1% estimated at 3% of sales revenue from standard product sale. 8: Machine idle time is 20% of Gross machine hrs. used 8: Reduction to 12.5% (i.e. running hour = 80% of gross/ hrs.) 9: Sundry costs of Administration, Selling and 9: Reduction by 10% of Distribution total- Rs. 6,00,000 per period. the existing. 10: Prevention programme costs Rs. 2,00,000 10: Increase to Rs. 6,00,000 The Total Quality Management Programme will have a reduction in Machine Run Time required per product unit to 0.5 hr. Required:(a) Prepare summaries showing the calculation of (i) Total production units (pre inspection), (ii) Purchase of Materials X (Square meters), (iii) Gross machine Hours. In each case, the figures are required for the situation both before and after the implementation of the Quality Management Programme so that orders for 5,000 products can be fulfilled.

000.Synthetic slabs: Synthetic slabs cost $40 per hundred. The dedicated cell variable costs per hundred sub. Is planning a quality management programme at a cost of$250. Defective units are sold for scrap at $10 per hundred units. for the period showing the profit earned both before and after the implementation of the total Quality programme. Customers returns are currently 2.Finished goods A finished goods stock of components AX and BX of 15.5% of the input to each cell. Variable stock holding costs are $15 per thousand components units. which have the same cost structure. The proposed dedicated cell layout of the finishing process will eliminate the need tp hold stocks of finished components. which has variable conversion costs of $20 per hundred slabs input. Both before and after the implementation of the quality management programme: 1:. On average 2.components as required and converts them into final components AX and BX are $15 and $25 per hundred units respectively.Curing /moulding process The synthetic salbs are issued to a curing/holding process. on receipt in stores. other than sufficient to allow for the free replacement of those found to be defective in customer hands. -------------------------------------------------------------------------------------------------------------------- (b) Q6:-The Bushworks Ltd convert synthetic slabs into components AX and BX for use in the car industry.components A and B processed will be $12 and $20 respectively. In addition. 3:. This process produces sub-components A and B. eliminating all stockholding costs.000 per annum. This has been negotiated with the supplier who will deliver slabs of guaranteed design specification for $44 per hundred units. At the end of the finishing process15%of units are found to be defective. 2:.Finishing Process The finishing process has a bank of machines which perform additional operations on type A and B sub. The quality programme will rectify the temperature control problem thus reducing losses to 1% of input to the process. A move to adjust in time purchasing system will eliminate the holding of stocks of synthetic slabs. checks to ensure that the slabs received conform to specification costs $14. The quality programme will convert the finishing process into two dedicated cell. The following information relates to the costs incurred by Bushworks Ltd.000 and 30.5% of components delivered to customers. one for each of components types AX and BX.5% of synthetic slabs received are returned to the supplier as scrap because of deterioration in stores. Bushworks Ltd. Defective units of components AX and BX are expected to fall to 2. Defective components will be sold as scrap as at present.Prepare Profit and Loss Account for Carlon Ltd.000units respectively is held throughout the year in order to allow for customer demand fluctuations and free replacement of units returned by customers due to specification faults. 4:. This stock level will be set at one month’s free replacement to customers which is estimated at 500 and 1000 units . The supplier allows a credit of $1 per hundred slabs for such returns. Lossess of 10% of input to the process because of incorrect temperature control during the process are sold as scrapat$5perhundred units.

A just-in-time system is in place such that no stock of materials. appraisal costs and prevention costs giving examples of each.000 12. 5:.000 Customer 20.000 30. using the information in the question and the data in Table 1.000 800. ------------------------------------------------------------------------------------------------------------------- Q7:- Cost of Quality reporting Burdoy Plc has a dedicated set of production facilities for component X. Work-in-progress or finished goods are held. Table 1 summarises the relevant figures.000 1212. Variable stockholding costs will remain at $15 per thousand components units. At the beginning of period 1.000 806.706 217059 20667 31077 process losses Input to 964 706 1447 059 826667 1243 077 finishing process 2411765 2069744 Curing/moulding losses 267974 20 907 Input to curing /moulding 2679739 2090651 Stores losses 68 711 -Purchase of Synthetic slabs 2748450 2090651 Required:(a) Evaluate and Present a statement showing the net financial benefit or loss per annum of implementing the quality management programme. the planned information relating to the production of component X through the dedicated facilities is as follows: (i) Each unit of component X has input materials: 3 units of material A at $ 18 per unit and 2 units of material B at $9 per unit.for types AX and BX respectively.000 1200.000 1230. Table 1 Existing Situation Amended Situation Type A/Ax Type B/ BX Type A/ AX Type B/ BX (units) (units) (units) (units) Sales 800. . ( All relevant working must be shown) (b) Explain the meaning of the terms internal failure costs.000 delivered Finished 144. sub-components A and B and components AX and BX which will be required both before and after the implementation of the quality management programme.000 6.000 1200. external failure costs. making use of the information in the question.000 returns Finsihed goods 820.Quantitative data: Some preliminary work has already been carried out in calculating the number of units of synthetic salbs.

160 Variable cost of production ($) (excluding materials cost) 91. Appendix 3.1. (iv) It is anticipated that 10% of the units of X worked on in the process will be defective and will be scrapped.500 5.000 of inspection costs.(ii) Variable cost per unit of component X (excluding materials) is $15 per unit worked on. (iii) Fixed costs of the dedicated facilities for the period $162. It is estimated that customers will require replacement (free of charge) of faulty units of components X at the rate of 2% of the quantity invoiced to them in fulfillment of orders.000 on extra planned maintenance of equipment .780 Total Costs: Materials A and B ($) 440.000 Period 3: Equipment accuracy checks of $10.400 5. Consequently all losses will be treated as abnormal in recognition of a zero defect policy and will be valued at variable cost of production.700 . appraisal costs and prevention costs.120 6. which shows actual internal failure costs.1 to show that the period 1 actual results were achieved at the planned level in respect of (i) Quantities and losses and (ii) Unit cost levels for materials and variable costs.400 416.640 446. Burdoy plc authorized additional expenditure during periods 2 and 3 as follows: Period 2: Equipment accuracy checks of $ 10. The analysis should show the changes from the planned quantity of process losses and changes from the planned quantity of replacement of faulty components in customer hands: ( e)Prepare a cost analysis for each of periods 2 and 3. Actual results for each period 1 to 3 for component X are shown in Appendix 3.000.1. Required:(a) Prepare an analysis of the relevant figures provided in Appendix 3. No changes have occurred form the planned price levels for materials. Burdoy plc is pursuing a total quality management philosophy. external failure costs. ( c ) Actual free replacements of component X to customers were 170 units and 40 units in periods 2 and 3 respectively.000 plus $ 5.000 plus $3. (b) Use your analysis from (a) in order to calculate the value of the planned level of each of internal and external failure costs for period 1.000 and staff training of $ 5. Other data relating to periods 2 and 3 is shown in Appendix 3.1 Actual Stastics for component X Period1 Period 2 Period 3 Invoices to customers (units) 5.450 Worked on in the process(units) 6.000 86. also staff training costs of $5. variable overhead or fixed overhead costs.800 93.200 5. Required:( d) Prepare an analysis for Each of period 2 and 3 which reconciles the number of components invoiced to customers with those worked on in the production process.

250 per roll to a distributor who markets. Direct materials costs are Wellesley’s only variable costs. $427.500 / 9.000 rolls of cloth started at the weaving operation.500 rolls 8. weaving and printing.000 rolls Monthly production 9. There is no connection between the requirements.850/10.500.000 additional rolls of gray cloth from an outside supplier at $900 per roll. Scrap costs per roll.000 $427.000 177.500 Fixed operating costs per roll ($2.000 rolls of cloth in the Weaving Department because of capacity constraints of the weaving machines.Fixed cost ($) 162.000 ----------------------------------------------------------------------------------------------------------------------------------------- Q8:-Quality improvement theory of constraints).000 /9. 950 rolls (10%) are scrapped and yield zero net disposal value. The quality of the graw cloth acquired from outside is very similar to . the cloth must be scrapped and yield zero net disposal value.000 185.500 rolls) 45 Total manufacturing costs per roll in Printing Department 145 Total manufacturing costs per roll $930 The Wellesley Corporation total monthly sale of printed cloth equal the Printing Department’s output. based on total ( fixed and variable) manufacturing costs per roll incurred up to the end of the weaving opera ration. Of the 10.Each requirement refers only to the preceding data. If the weaving operation produces defective cloth. Scrap costs.500 good rolls started at the printing operation. The Wellesley Corporation makes printed cloth in two operations. The demand for Wellesley’s cloth is very strong. equal $930 per roll calculated as follows:Total Manufacturing costs per roll in Weaving Department $785 Printing Department manufacturing costs Direct materials costs per roll (variable) $100 Fixed operating costs per roll ($427.000 rolls) 285 Total manufacturing costs per roll in Weaving $785 Department The good rolls from the Weaving Department (called gray cloth) are sent to the Printing Department of the 9. equal $785 per roll as follows: Direct materials costs per roll (variable) $500 Fixed operating costs per roll ($2.550 rolls Direct materials costs per roll of cloth Processed at each operation $500 $100 Fixed operating costs $2.850.The printing Department is considering buying 5. Wellesley can sell whatever output Quantity produces at $1.550) $300 per roll $50 per roll Wellesley can start only 10.000 rolls 15. Required:.500/8. The Printing Department manager is concerned that the cost of purchasing the gray cloth is much higher than Wellesley cost of manufacturing it. Weaving Printing Monthly capacity 10. based on total ( fixed and variable) manufacturing costs per unit incurred up to the end of the printing operation. 500 rolls (5%) are scrapped. distributes and provides customer service for the product. 1:.850.

3:. If a defective unit is produced at the molding operation.00.The design engineering team has proposed a modification that would lower the Weaving Department’s scrap rate to 3%. Should Wellesley implement the change? Show your calculations. it must be scrapped and the net disposal value of scrap is zero.000. and (5) Sell 100 additional copiers for a total contribution margin of $6. Photon expects that it will (1) Save 12. Photon uses a one-year time horizon for this decision.000 units (15%) are scrapped. -------------------------------------------------------------------------------------------------------------------- Q9:-The Photon Corporation manufactures and sells 20. (3) Move 200 fewer loads. rent and other allocatedoverehad.000 hours of repair.000 units into production in the Molding Department because of capacity constraints on the molding machines. They propose changing the lens of the Copier. 2:. including .000 units started at the molding operation 30. The Printing Department expects that 10% of the rolls obtained from the outside supplier will be defective. Of the 2. Required:. Tan will be able to sell whatever output quantities it can produce at $40 per lamp.000 per month. The demand for lamps is very strong. Implementing the new method would cost $350. The molding operation has a capacity of 2. Tan can start only 200. (2) Save 800 hours of customers support. By changing the lens.000. Show your calculations. Scrap costs.000. it will not be able to save any of the fixed costs of rework or repair. The modification would cost the company $175. Each copier uses one lens.000 per month. based on total (fixed and variable) manufacturing costs incurred up to molding operation equal $25 per unit as follows:Direct materials (variable) $16per unit Direct manufacturing labor. Photon believes that even as it improve quality. Setup labor And materials handling labor (variable) 3 per unit Equipment. Should Wellesley implement the change? Show your calculations. The new lens will cost $ 50 more than the old lens. (4) Save 8.Should Photon change to the new lens? Show your calculations. The variable and fixed costs of rework and repair are as follows: Variable costs Fixed costs Total Costs $100 Rework cost per hour $ 40 $60 Repair costs Customers support costs per 20 30 50 Transparency costs per load 180 60 240 Warranty repair costs pre hour 45 65 110 Photon’s engineers are currently working to solve the problem of copies being too light or too dark. ------------------------------------------------------------------------------------------------------------------------------------------- Q10:-The Tan Corporation uses multicolor molding to make plastic lamps.000 hours of rework. because it plans to introduce a new copier at the end of the year.that manufactures in-house.000 units per year.Wellesley engineers have developed a method that would lower the Printing Department’s scrap rate to 6% at the printing operation.000 copies each year.

C:.Customer complaints a percentage of units shipped. The following information is available for the first year (2004) of the TQM program compared with the previous year.On the basis of your calculations in requirement 1. ESC’s president believes that product quality is the key to gaining competitive advantage. Laurent implemented a total quality management (TQM) program with an emphasis on customer satisfaction.000 110. (ESC) produces telecommunications equipment Charles. ----------------------------------------------------------------------------------------------------------------------------------------- . D:.000 Required: - 1: . Has ESC’s performance on quality and timeliness improved? 3: . A:. A:. (2003) (20004) Total number of units produced and sold 10.How did Larkin conclude that output per lab our hour declined in 2004 relative to 2003? B:. B:.Should Tan use the new material? Show your calculations.Inspection and testing costs on scrapped parts (Fixed) 6 per unit Total $ 25 per unit Tan’s designers have determined that adding a different type of material to the easting direct materials would reduce scrap to zero. a member of ESC’s board of directors.000 Units delivered before scheduled delivery data 8. ------------------------------------------------------------------------------------------------------------------------------------------- Q11:-Eastern Switching Co. the output per labor hour has declined between 2003 and 2004. Required:.Percentage of defective units shipped.For each of the years 2003 and 2004 calculate.On time delivery rate. comments that regardless of the effect that the program has had on quality. Larkin believes that lower output per lab our hour will lead to an increase in cost and lower operating income.500 9.Do you think that a lower output per lab our hour will decrease operating income in 2004? Explain briefly. but it would increased the variable costs by $4 per lamp In the Molding Department.Why might output lab our hour decline in 2004? C:.900 Number of defective units shipped 400 330 Number of customers complaints other than for defective 500 517 units Average time from when customer places fro defective unit to When unit is delivered to the customer 30days 25 days Number of units reworked during production 600 627 Manufacturing lead time 20days 16 days Direct and indirect manufacturing labor-hours 90.000 11.Philip Larkin.Percentage of units reworked during production. 2: .

Bergen. 19. Semi-annual Costs of Quality Report.Q12:. Rs.200 57.07. the breakdown repair costs and the hours lost due to breakdown can be reduced and consequently production can be increased. Lacs Sales (1. The Technical Director stated that maintenance has not been given due importance in the budget and that if preventive maintenance is introduced.000 Using differential and contribution concept. Ans:. the possibilities of increasing the production are explored by the budget committee. he presented the following data.improvement program has now been in operation for two years. 1.600.800 2. Bergen’s president. decided to devote more resources to the improvement of product quality after learning that his company’s products has been ranked fourth in product quality in a 2002 survey of telephone equipment users.00. In support of this.The budget estimates of a company using sophisticated high speed machines based on a normal working of 50. showing how injection of more and more funds on preventive maintenance will bring down the break down repair costs and reduce or eliminate the machine stoppages due to breakdown: Proposed exp.1 Contribution per unit = Rs.92.53.400 3.600 76. Inc produces telephone equipment. Contribution per machine hour = Rs.53.400 --4.200 6.200 1.000 units) 100 Raw Materials 20 Direct wages 20 Factory Overheads: Variable 10 Fixed 10 Selling & Distribution Overheads: variable 5 Fixed 5 Administration OverheadsFixed 10 Total costs 80 Profit 20 Since the demand for the company’s product is high.000 Nil 38.600 1.Bergen.15.M.600 800 76.000 machine hours during 1986 are as under: Rs. -------------------------------------------------------------------------------------------------------------------Q13-:.400 1. Estimated to be incurred Machine hours saved Preventive Maintenance on Breakdown Repairs Rs. Bargen’s quality. Jerry Holman. advice the management up to what level breakdown hours can be reduced to increase production and maximize profits of the company consistent with minimum costs. 90 Up to IV level it is justify spending P. On Exp.53. Inc.600 3. 45.14. and the cost report shown below has recently been issued.200 1.800 1. .

000 1. non financial quality measures).027 $4. Information on each Refrigerator is as follows: Olivia Solta Units manufactured and sold 10.000 Testing and inspection hours per unit 1 0.200 $ 800 Hours spent on design 6. ----------------------------------------------------------------------------------------------------------- TQM Q14.120 Required:- (in thousands) 12/31/2003 6/30/2004 $ 215 45 102 362 53 160 213 106 64 170 31 251 282 $1.000 $ 1. Oliva and Solta.5 Percentage of Units reworked in plant 5% 10% Rework costs per refrigerator $500 $400 Percentage of units repaired at customer site 4% 8% Repair costs per refrigerator $600 $ 450 Estimated lost sales from poor quality ----300 units The labor rates per hour for two activities are as follows:Design $75per hour .510 1:. could no longer afford to ignore the importance of product quality.000 units 5.500 Variable costs per unit $ 1.(Costs of quality analysis. Discuss how Bergen could measure the opportunity cost of not implementing the quality improvement program. Inc. Has Bergen’s quality improvement program been successful? Explain. 2:.000 units Selling Price $ 2.6/30/2003 Prevention Costs Machine maintenance $ 215 Training Suppliers 5 Design reviews 20 Total prevention costs 240 Appraisal costs Incoming inspection 45 Final testing 160 Total appraisal costs 205 internal failure costs Rework 120 Scrap 68 Total internal failure costs 188 External failure costs Warranty repairs 69 Customers returns 262 Total external failure costs 331 Total quality costs $964 Total production and revenue $ 4. Ontario Industries manufactures two years of refrigerators.650 12/31/2004 $ 160 15 95 270 22 94 116 62 40 102 23 80 103 $591 $4.Calculate the ratio of each COQ category to revenue for each period.540 $ 190 20 100 310 36 140 176 88 42 130 25 116 141 $757 $4.Jerry Holman believed that a quality improvement program was essential and that Bargen.

responses time should pizza fest quote to its customers if A. The average price of a pizza is $13. It estimates that it will fail to deliver a total of 15. calculate the ratio of each COQ category as a percentage of revenues Compare and Comment on the costs of quality for Olivia and Solta. What actions can pizza fest take to reduce customer.response time? ----------------------------------------------------------------------------------------------------------- . if the pizza is not delivered within 60 minutes of placing the order the customer gets the pizza fest estimates that it will make additional sales of 20. they often ask how long it will take for the pizza to be delivered to their homes or offices. 3:. Calculate the percentage of pizzas delivered in each of the four time intervals (30 minutes or less. Pizza fest provides the following information for2004 about its customer.the amount of time from when a customer calls to place an order to when the pizza is delivered. Based on the January – June 2004 data. what customer.time delivery performance of 75%? B. A. If pizza fest had quoted the customer. has customer. and 61 – 75 minutes). would it have met its on – time delivery performance targets of 75% and 95% respectively.000 Total pizzas delivered 400. If pizza fest quotes too short a time interval and the pizza is not delivered on time. What is the effect on pizza fest’s operating income of making this offer? B. 4.response times you calculated in requirements 2a and 2b. --------------------------------------------------------------------------------------------------------------------------------- Q15.45 minutes. Fast.000 150.000 Pizzas delivered in between 46 and 60 minutes 80.Give two examples of non financial quality measures that Ontario Industries could monitor as part of a total quality control program. on time delivery.December compared with January. Pizza fest.June? 2. On the basis of these calculations.000 pizzas as a result of giving this guarantee.Customer-response time. What non financial and qualitative factors should pizza fest consider before making this offer? C. customers get upset and pizza fest will lose repeat business.response time improved in July.000 Pizzas delivered in between 61 and 75 minutes 20. It wants to have an on.Testing and inspection $40per hour 1:.000 pizzas on time.For each type of refrigerator.000 260. For July. It wants to have an on.December 2004? Explain. Inc makes and delivers pizzas to homes and offices in the Boston area.time delivery performance of 95%? 3.000 Required: 1. appraisal. internal failure and external failure categories.response time.Calculate the costs of quality for Olivia and Solta.000 Pizzas delivered in between 31 and 45 minutes 200.000 20. January – June July – December Pizzas delivered in 30 minutes or less 100. and variable cost of a pizza is $7. customers often will not place the order. 2:. When customers call pizza fest. For January – June and July – December 2004.June 2005.000 70. 31. classified into prevention. Pizza fest is considering giving an on-time guarantee for January.000 500. on time delivery is one of pizza fest’s key strategies. If pizza fest quotes a long time interval.

• The jackson corporation has asked Thomas to supply 22. The new process would cost $315.Q16-: (Quality improvement. 2. material handling.000 units 12. and $4.000 units Average quantity of inventory held 100 units 100 units During the year Required return on investment 15% 15% Stock out costs per unit $20 $10 Stock outs per year 350 units 60 units Customer returns 300 units 25 units Customer.000 valves because 30.000.Thomas can make two T971 valves per machine. from whom should cape land buy footballs? ------------------------------------------------------------------------------------------------------------ . • Direct materials and direct rework labor (variable costs): $3 per unit • Fixed costs of equipment rent and overhead allocation: $4 per unit Thomas’s process designers have developed a modification that would maintain the speed of the process and ensure 100%. Quality and no rework. Thomas’s rework costs are $2.Should Thomas implement the new design? Show your calculation.000 per year.000 machine-hours and can produce 3 valves per machine-hour. It takes 1 machine-hour to rework 3 valves.000 T971 valves? Show your calculation.(Supplier evaluation and relevant costs of quality and timely deliveries). Suppose Thomas’s designers implement the new design.02 0 Insurance. 2. Pertinent information about each potential supplier follows: Relevant Item Big red Quality sports Purchase price per unit (case) $50 $51 Ordering costs per order $6 $6 Inspection costs per unit $. What non financial and qualitative factors should Thomas consider in deciding whether to implement the new design? ----------------------------------------------------------------------------------------------------------- Q17-: . The Thomas Corporation sells 300.000 hours of capacity are used in the rework process. Copeland sporting goods is evaluating two suppliers of footballs. and relevant revenues).50 So on per unit per year Annual demand 12.000 V262 valves to the automobile and truck industry.000 per year. so 10.10.000 T971 valves (another product) if Thomas implements the new design. Should Thomas accept Jackson’s order for 22. Required 1.hour with 100% quality and no rework. V262’s contribution margin per unit is $8. Thomas has a capacity of 110.return costs per unit $25 $25 Required: Calculate the relevant costs of purchasing (1) from big red and (2) from quality sports using the format presecribed. The following additional information is available: • The demand for Thomas’s V262 valves is 370.00 $4. The contribution margin per T971 value is $10. relevant costs.000 valves (10% of the good valves) need to be reworked. Big red and quality sports. Thomas sells only 300.

Calculate the ratio of each COQ category to revenues in 2004 and 2005. the plant manager of Citocell. The Hartono Corporation manufactures and sells industrial grinders.Information from a quality report for 2004 prepared by Lindsey Williams assistant controller of Citocell a manufacturer of electric motors.(Costs of Quality analysis non financial quality measure). Evans expected Williams to be less proactive and waits for customers to complain. appraisal. is as follows: Revenues $10. 3:.000 Warranty liability 260. Williams actually surveyed customers regarding customer satisfaction. or external failure categories.000 Product testing 210.500 $10.000 Inspection of Production 90.Q18.Classify the cost items in the table into prevention.000 Design engineering 200. ----------------------------------------------------------------------------------------------------------- Q19-:. is eligible for a bonus if the total costs of quality as a percentage of revenues are less than 10% the percentage of customer complaints is less than 4%.” When you wait for a customer to complain. internal failure. 2:. you .1:.000 Scrap 230.000 Inspection of Production 85 110 Scrap 200 250 Design engineering 240 100 Cost of returned goods 145 60 Product-testing equipment 50 50 Customers support 30 40 Rework costs 135 160 Preventive equipment maintenance 90 35 Product liability claims 100 200 Incoming materials inspection 40 20 Breakdown maintenance 40 90 Product testing labor 75 220 Training 120 45 Warranty repair 200 300 Supplier evaluation 50 20 Required:.Give two examples of non financial quality measures that Hartono Corporation could monitor as part of a total quality control effort.000. and the on time delivery rate exceeds 92%Evans is unhappy about the customer complaints of 5% because when preparing her report. Evan’s concern with William’s approach is that it introduces subjectivity into the results and also fails to capture the seriousness of customers concerns.000 Percentage of customer complaints 5% On-time delivery rate 93% Davey Evans.Comment on the trends in costs of quality between 2004 and 2005. The following table presents financial information pertaining to quality in 2004 and 2005 (in thousands): Year 2005 2004 Revenue $ 12.

the controller. After much research it has drawn up a short list of five Separate possible improvements and has assessed their outcomes using the following criteria: Criterion A: Reduced average number of waiting hours per month per patient. “I think Davey has a point .” Williams is confidant that the customer complaints are genuine and that customers are concerned about quality and service.Would it be unethical for Williams to modify her analysis ? What steps should Williams take to resolve this situation? -------------------------------------------------------------------------------------------------------------------- Q20.Calculate the ratio of each cost-of quality category (prevention.5 10 . 1:.A drug treatment day center run by a charity organization wishes to improve the quality of its service to patients by the addition of extra facilities. and external failure) to revenues in 2004. Evans would probably be eligible for the bonus.Are the total costs of quality as a percentage of revenues less than 10%? 2:. even if it is not terribly important”. Criterion C: Reduced average number of month to cure per patient. The assessed outcomes are: Improvement Extra facilities Outcome according to criterion Reference number A B C D Hours % Months % 1 Increase medical staff by 2 4. She is also well aware that Citocell has not done customer surveys in the past. Criterion B: Increased percentage frequency of seeing patients when they attend. When you do customer surveys.:. She believes it is important for citocell to be proactive and obtain systematic and quick customer feedback. and except for her surveys. Criterion D: Increased percentage frequency of patient attendance at the center.know they are complaining because it is something important. and then to use this information to make improvements. HE tells her about Evans’s concerns. appraisal. She is confused about how to handle Roche’s requires. customers mention whatever is on their mind.8 35 1 5 Doctors and 1 nurse 2 Increase counseling staff by 2 6 20 1. John Roche. asks Williams to see him.See what you can do.75 22 And from the center 4 Extend by 20 hours per month 4 30 1.25 10 Counselors and 1 nurse 3 Taxi service to bring patients to 2 12 0. internal failure.

The interest and all other costs will be met by donations.000 p. The Centers capital requirements will be borrowed from the bank at 12% p. The depreciation charge will be used to reduce the loan at the end of each year. Associated capital Equipment costs Doctors salary Rs. 7 counselors and 4 nurses.20 per mile.000 Counselors expenses 1.000 Doctors expenses 3.000 Nurse’s expenses 2.000 Rs.500 -Nurse’s salary 10.a. .2 patients and the cost to the center will be Rs. Group counseling sessions will require: 1 Specialist counselor costing Rs. 4.000 --Counselors salary 16. Cost of working capital can be ignored.a. Each taxi carry an average of 1. Total distances that patients are expected to be carried per attendance are: (%) Percentage of patients 10miles 20 20 miles 40 30 miles 40 100 The costs of extra facilities would be: Cost p. Extra administration/ establishment costs are Rs. The professional staffs currently employed are 5 doctors. You are required to: (a) Calculate for each improvement the incremental cost: (i) Per patient per month (j) For the appropriate unit of each of the four criteria. more than ordinary counselors. less than ordinary counselors. The proposed improvement will have no effect on the number of patients seen.000 -These costs are depreciated over five years on a straight-line basis with no residual value.000 per annum will be incurred for administration/ establishment costs. 3.000 patients. 0. If hours are extended beyond 160 per month. 22.75 15 Sessions. 5. The taxi service is expected to be used by 60% of patients with an average attendance of once per month. overtime will need to be paid at a premium of 25% on salaries (but not expenses) and an extra Rs.a.000 2.000 p. At present the center is open for 160 hours per month and deals with 3.000 1.a. 2. 1 nurse Capital costs will be the same as for ordinary counselors. 200 per month per perso.The time the center is open 5 Introduce group counseling 10 1. 1 assistant counselor costing Rs.

(b) Identify the improvement with the lowest cost in (a) (ii) above for each of the four criteria.
--------------------------------------------------------------------------------------------------------------------

JIT PURCHASING
Q21:- (Relevant benefits and Costs of JIT purchasing). Hardestry Medical
Instruments is considering JIT implementation in 2003. Hardestry’s annual demand for Product XJ-200, a surgical scalpel, is 20,000 units. If Hardesty implements JIT, the purchase price of the scalpal is expected to increase from $10 to $10.05 because of frequent deliveries by Merrison Manufacturing, Inc. Morrison enjoys a sterling reputation for quality and reliability. Ordering costs will remain at $5 per order. However, the annual number of orders placed will be 200 instead of the current 20. As a result of frequent ordering. Hardesty’s order size will decrease proportionally. Hardesty’s required rate of return on Investment is 20%. Other carrying Costs (insurance, materials handling and so on) will remain at $4.50 per unit. Currently Hardesty has no stock out costs. Lower inventory levels from implementing JIT will lead to $3 per unit stock out costs on 100 units during the year. Required:- Calculate the estimated dollar savings ( Loss) for Hardesty Medical instruments from the adoption of JIT purchasing. Answer:- $ 724.50 -------------------------------------------------------------------------------------------------------------------Q22:- The Margro Corporation is an automotive supplier that uses automatic turning machines to manufacture precision parts from steel bars. Margro’s inventory of raw steel averages $6,00,000. John Oates, President of Margro, and Helen Gorman. Margro’s controller, are concerned about the costs of carrying inventory. The steel suppliers is witling to supply steel in smaller lots at no additional charge. Helen Gorman identified the following effects of adopting a JIT inventory program to virtually eliminate steel inventory. • Without scheduling any overtime, lost sales due to stock outs would increase by 35,000 units per year. However, by incurring overtime premiums of $40,000 per year, the increase in lost sales could be reduced to 20,000 units. This would be the maximum amount of overtime that would be feasible for Margro. • Two warehouses currently used for steel bar storage would no longer be needed. Margo rents one warehouse from another company, under a cancelable leasing arrangement, at an annual cost of $60,000. The other warehouse is owned by Margro and contains 12,000 square feet. Three-fourths of the space in the owned warehouse could be rented for $1.50 per square foot per year. Insurance and properly tax costs totaling $14,000 per year would be eliminated. Long – term capital investments by Margro are expected to Produce an annual rate of return of 20%. Margro Corporation Budgeted income statement for the year ending December 31,2003,(in thousands) is as follows:Revenues ( 900.000 units) $10,800 Cost of goods sold Variable costs $4,050 Fixed costs 1,450

Total costs of goods sold 5,500 Gross Margin 5,300 Marketing and distribution costs Variable costs $900 Fixed Costs 1,500 Total marketing and distribution costs 2,400 Operating income $ 2,900 Calculate the estimated dollar savings (loss) for the Margro Corporation that would result in 2003 from. Required the adoption of the JIT inventory –control method. Answer:- $ 37,500.

Q23:- (Calculation of reduction in storage costs arising from the implementation
of JIT production and purchasing) Product plc has an annual turnover of Rs. 6,00,00,000 from a range of products, Material costs and conversion costs account for 30% and 25% of turnover respectively. Other information relating to the company is as follows: (i) Stock values are currently at a constant level, being: (a) Raw materials stock:10% of the material element of annual turnover. (a) Work in Progress: 15% of the material element of annual turnover together with a proportionate element of conversion costs allowing for 60% completion of work in progress as to conversion cost and 100% completion for material . The Ratio is constant for all products. (b)Finished goods stock:12% of the material element of annual turnover together with a proportionate element of conversion cost. (ii) Holding and acquisition costs of materials comprise fixed costs of Rs.2,00,000 per annum plus variable costs of Rs. 0.10 per Rs. of Stock held. (iii) Movement and control costs of work in progress comprise fixed costs of Rs. 2,80,000 per annum plus variable costs of Rs. 0.05 per Rs. of material value of work-in-progress. (iv) Holding and control costs of finished goods comprise fixed costs of Rs.3,60,000 per annum plus variable costs of Rs. 0.02 per Rs. of finished goods(material cost + Conversion cost) (v) Financial charges due to the impact of stock holding on working capital requirement are incurred at 20% per annum on the value of stocks held. Product plc are considering a number of changes which it is estimated will affect stock levels and costs as follows:1:- Raw material Stock: Negotiate delivery from suppliers on a just in time basis. Stock levels will be reduced to 20% of the present level. Fixed costs of holding and acquiring stock will be reduced to 20% of the present level and variable costs to Rs.0.07 per Rs. of stock held. 2:- Work in Progress : Convert the layout of the production area into a dedicated cell format for each product type instead of the existing system which comprises groups of similar machines to which each product type must be taken .Work in progress volume will be reduced to 20% of the present level with the same stage of completion as at

present .Fixed costs of movement and control will be reduced to 40% of the present level and variable costs to Rs.0.03 per Rs. of material value of work in progress. 3:- Finished goods stock:- Improved control of the flow of each product type from the production area will enable stocks to be reduced to 25% of the present level. Fixed costs of holding and control will be reduced to 40% of the present level and variable costs to Rs. 0.01 per Rs. of finished goods held. -------------------------------------------------------------------------------------------------------------------

Q24:- X Ltd. manufactures and distributes three types of Car (the C1, C2 and C), Each
type of car has its own production line. The company is worried by extremely difficult market conditions and forecasts losses for the forthcoming year. The budgeted details for next year are as follows” C1 C2 C3 $ $ $ Direct Materials 2,520 2,924 3960 Direct labour 1120 1,292 1980 Total Direct cost per car 3640 4216 5940 Budgeted production (cars) 75,000 75,000 75.000 Number of production runs 1,000 1,000 1,500 Number of orders executed 4,000 5,000 5,600 Machine hours 1080,000 1800,000 1680,000
Annual overheads

Fixed $

Variable $

Set ups 42,600 13,000 per production run Materials handling 52,890 4,000 per order executed Inspection 59,880 18,000 per production run Machining 1,44,540 40 per machine hour Distribution and warehousing 42,900 3,000 per order executed Proposed JIT System Management has hired a consultant to advise them on how to reduce costs. The consultant has suggested that the company adopts a just-in-time(JIT) manufacturing system. The introduction of the JIT system would have the following impact on costs ( Fixed and variable): Direct labour Increase by 20% Set ups Decrease by 30% Materials handling Decrease by 30% Inspection Decrease by 30% Machining Decrease by 15% Distribution and warehousing Eliminated Required:(a) Based on the budgeted production levels, calculate the total annual savings that would be achieved by introducing the JIT system.

including hardware and software. The JIT system will include a computer system and materials handling equipment .The decision will be based on wheather the new JIT system is cost effective to the organization for the next five years. Better quality would enable Evans to raise the selling prices of its products by $3 per unit. b.Rosen Manufacturing Corporation produces office furniture and sells it wholesale to furniture distributors.000 revenue increase to continue to grow by 10%per year thereafter. (a) Give examples of performance measures Evans could use to evaluate and control JIT production.000. 2. relevant costs). c. 1. Calculate the net benefit or cost to the Evans Corporation from implementing a JIT production system. The emphasis on quality inherent in JIT systems would reduce rework costs by 20%.000. Suppose Evans implements JIT production. Rosen’s management is reviewing a proposal to purchase a Just-in-time inventory (JIT) system to better serve its customers. Materials handling equipment will cost $450.(JIT production.:. relevant benefits.000. will initially cost $ 1.000 units each year. . (b) What is the benefit to Evans of implementing an enterprise planning (ERP) system? --------------------------------------------------------------------------------------------------------------------------------- Q26. Evans sells 30. space. * There will be a one–time decrease in working capital investment of $150. Evans’s required rate of return on inventory investment is 12% per year. a. materials-handing. * Annual material.-------------------------------------------------------------------------------------------------------------------------------------- Q25-:. * The contribution margin is 60%.The computer system will have a $0 terminal disposal value at the end of five years. What other non financial and qualitative factors should Evans consider before deciding whether it should implement a JIT system? 3.000.250. from $900.000due to a greater level of purchase orders. Evens estimates that the following annual benefits would arise from JIT production. Average inventory would decline by $700. the newly acquired materials-handling equipment is expected to be sold for $150. d.Both groups of equipment will have a five-years useful life for tax reporting of depreciation (straightline) calculated assuming a $0 terminal disposal value. Events are deciding whether to implement a JIT production system.000. which currently total $200. and setup costs.000 to $200. At the end of the five years. The computer system.000 at the end of the first year. The Evans Corporation manufactures wireless telephone. which would require annual tooling costs of $150. Other factors to be considered over the next five years for this proposal include the following * Due to the service improvement resulting from this new JIT system.000 on rework.000. Evans currently incurs $350. would decline by 30%.ordering costs will increase $50.000. Insurance. Rosen will realize a $ 800.

000. --------------------------------------------------------------------------------------------------------------- LIFE CYCLE COSTING Q27:. Rosen uses an after-tax required rate of return of 10% and is subject to an income tax rate of 40%.800. (2) Semi Automatic machine involving an initial capital cost of Rs.Prepare an analysis of the after tax effects for the purchase of the JIT system at Rosen using the net present value method for evaluating capital expenditures.Determine whether Rosen should purchase the jit system.000. The company’s cost of capital is 14%.000.000.00. The current annual rent is $300.000 Customer-service cost per watch $1. The annual operating cost of this model is Rs.000. Salvage value at the end of its life of 5 years is Rs.20 Fixed costs $1.000. Answer:. 20. 1. Destin products makes digital watches.000.000.000 Marketing Variable cost per watch $3. Be sure to show all of your computations. The annual operating cost is Rs. Salvage value at the end of its life of 5 years is Rs. Two models of machines available are as under: (1) Automatic machine involving an initial capital outlay of Rs.There will be a 20% savings in warehouse rent due to less space being needed. 2:. Development on the new watch is to start shortly. Explain your answer. 1:.cycle units manufactured and sold 400.Rs.Assume that all cash flows occur at year-end for tax purposes except for any initial purchase amounts.50.000 Distribution Variable cost per batch $280 Watches per batch 160 Fixed costs $720.000 Manufacturing Variable cost per watch $15 Variable cost per batch $600 Watches per batch 500 Fixed costs $1. 2. 8.00.16. Estimates for MX3 are as follows: Life.000.000 Selling price per watch $40 Life-cycle costs R&D and design costs $1.A Company proposes to replace its old and obsolete machine. 3.10.160 ------------------------------------------------------------------------------------------------------------------------------ Q28:-. 10. Which alternative is to be preferred? Ignore tax. Destin is preparing a product life-cycle budget for a new watch MX3. 5.Life-cycle product costing activity-based costing.Total Cost:.50 .

000 3. DSS is deciding which product lines to emphasize. If unit sales increase by 10% destin plans to increase manufacturing and distribution batch sizes by 10% as well.Life cycle product costing.What percentage of the budgeted total product life-cycle costs will be incurred by the end of the R&D and design stages? 2.Ignore the time value of money. Calculate the budgeted life-cycle operating income for the new watch.000.000 S1.000 3. Nancy Sullivan the engineering software manager.000 0 .83.000 IE –17 200 5. Should destin reduce MX3’s price by $3? Show your calculations.000 8. 2.83 300 2. and IE-17 package: EE-46 ME-83 IE-17 Year 1 Year 2 Year 1 Year 2 Year1 Year 2 Revenues S500. An analyst pointed out that for one of its most recent package (IE-17).000 S600. what are the implications for managing MX3’s costs? 3.000 S900.000 0 240. Required 1.000 Assume that no inventory remains on hand at the end of year 2.000. An analysis reveals that 80% of the budgeted total product life-cycle costs of the new watch will be locked in at the R&D and design stage. decides to collect the following life-cycle revenue and cost information for the EE – 46. -------------------------------------------------------------------------------------------------------------------- Q52:. Product mix. major efforts had been made to reduce R&D costs.000 0 450.000 $600. profitability has been mediocre. In the past two years.000 Costs R&D 700. DSS is particularly concerned with the increase in R & D costs. and fixed costs will remain the same.83: package for mechanical engineers • IE – 17 package for industrial engineers Summary details on each package over their two-year “cradle-to-grave” product lives are as follows: Number of units sold Selling Package Price Year 1 Year 2 EE –46 S250 2. Assume that all variable costs per watch variable costs per batch. ME.000 ME. Decision support systems (DSS) is examining the productivity and pricing policies of three of its recent engineering software packages: • EE –46: Package for electrical engineers • ME.000 S2. Destin’s market research department estimates that reducing MX3’s price by $3 will increase life-cycle unit sales by 10%.

4 cu. (v) Other product unit data: production time 0.M) 20.this includes all design costs for new products released this period.000 400 Distribution Weight (Kg) 1.000 200 Production Machine hours 12.000 220.000 36.000 Customer service 50.000 1500 (See note 2) Packing Volume(Cu.000 120. The following additional information applies to NPD.000 2000 (See note1) Purchasing Purchase order 4.20.000 65.000 360.000 60.000 143.Activates have been identified and the budget quantifies for the three months ended 31 March 2001 as follows:Activities Cost Driver Units of Cost Unit basis Cost Driver ($000) Product Design Design hours 8. (i) Estimated total output over the product life cycle: 5. and which is the least profitable? Ignore the time value of money. Required:(vi) Prepare a unit overhead cost for product NPD using an activity based approach which includes an appropriate share of life cycle costs using the information provided in (b) above.000 240.000 Distribution 15.000 units ( 4 years life cycle) (ii) Product design requirement : 400 design hours. Note2:.000 15. New product NPD is included in the above budget.000 110. 3:.cycle income statement differ from a conventional income statement? What are the benefits of using a product life – cycle reporting format? 2:. Which package is the most profitable.000 16. The remainder applies to other products.How do the three software packages differ in their cost structure (the percentage of total costs in each cost category)? -------------------------------------------------------------------------------------------------------------------Q30:.000 150.000 388.000 225.000 Manufacturing 75.000 36.000 105.000 600 Note1:.Present a product life.000 1:.000 45.000 24.How does a product life.000 10.000 of which $8000 applies to 3 months depreciation on a straight line basis for a new product (NPD).000 Marketing 140.this includes a depreciation provision of $300.000 60.000 105. Meters: weight 3 kg.000 208.000 105.Design of product 185.75 machine hours: volume 0.cycle income statement for each software package.000 80.000 325. . (iii) Output in quarter ended 31 ch 2001:250 units (iv) Equivalent batch size per purchase order: 50 units.

4:.VALUE ENGINEERING Q31:.ABC places two orders per month for each component. 0. the output of individual workmen will increase by 60%.10 per article and as an incentive. You are required to calculate extra weekly contribution resulting due to proposed changes.00 Machining costs 20.000 units.80 200.BC electronics makes audio player model “AB 100”. 60.00 Labour is paid on piece rate basis. The cost per unit of the cost driver for each activity cost pool is as follows: Manufacturing Description of activity Cost Driver Cost per Activity unit of Cost driver .20 Engineering costs 19. to 120 nos.000 Contribution on above Rs. The existing piece rate is Rs.00 Testing costs 25.000 per unit. ABC sells 10.00 Direct manufacturing labour costs 20.00 Rework costs 15.000 The management is contenting to bring about more mechanization in the department at a capital cost of Rs.The Operating result of a department provide the following information for a particular week: Average output per week 48.000 per unit or Rs. There will be a reduction in sale price by 4% to sell the increased production. 16. the management propose to increase the existing piece rate by 5% for every 10% increase in the individual output achieved. therefore.It currently takes 1 hour to manufacture each unit of “AB 100”.10 per cent of “AB 100’ manufactured are reworked. 2:. ABC considers direct manufacturing labour cost as variable cost. Each component is supplied by a different supplier. 3:. 200 lakhs per month for the production of 10.000 which will result in reduction in number of workmen from the present strength of 160 nos. Lakhs) Direct material costs 100. 2. However due to mechanical help. ABC has identifies activity cost pools and cost drivers for each activity.000 units Salable value of output Rs. -------------------------------------------------------------------------------------------------------------------- Q32:.000 units each month at Rs/.3. It has 80 components.00 Ordering costs 0.Testing and inspection time per unit is 2 hours. 24. Monthly manufacturing costs incurred are as follows:(Rs. The following additional information is available for “AB 100”: 1:. The cost of manufacturing is Rs.

Total manufacturing cost per unit:. 3:. costs Ordering of components Designing & managing of products and Processes No. Assume that the cost per unit of each cost driver for ‘AB 100’ continues to apply to ‘AB 200’.500 errors and defects reworked per unit 4:. 5:. and ‘AB 200’.The number of component will be reduced to 50. 125 finished products(each hours unit of AB 100’ is tested individually) 3:. Therefore ABC has decided to replace AB 100 by a new model ‘AB 200’ which is a modified version of AB 100’.200 2: Testing costs Testing components and Capacity Testing Rs.Direct material costs to be lower by Rs.600 and to reduce the cost by at least Rs. 2.1980 per engineering hour. each of the overhead costs described above vary with chosen cost drivers.Ordering Costs 5:. 1.Rework costs Correcting and fixing Units of AB 100’ Rs. The expected effect of design modifications is as follows: 1:. Required:1: . Hours of Rs. Cost reduction on the existing model is almost impossible.Rework to decline to 5 per cent.Direct manufacturing labour cots to be lower by Rs.Machining time required to be lower by 20 per cent.000.00. ABC currently outsourcers the rework on defective units.------------------------------------------------------------------------------------------------------------------1:Machining Costs Machining components Mach. 2:.(10. 4:. Ignore income tax.614.Compare the manufacturing cost per unit of ‘AB 100. of orders Engineering hours Rs. 400 per unit. 2: . In response to competitive pressure ABC must reduce the price of its product to Rs. 125 per order Rs. However if it does not be able to minimum the current sales level.Determine the immediate effect of design change and pricing decision on the operating income of ABC. ABC does not anticipate increase in sales due to price reduction.50) ------------------------------------------------------------------------------------------------------------------- TARGET COSTING Q33.Testing time required to be lower by 20 per cent. 200 per unit. Answer: .Machining capacity and engineering hours capacity to remain the same. 7:.2.Eng.Samsung is developing a high speed modem:- . 1. 6:. Overs long-run horizon.00 Net effect on operating income:. 20 per unit.

111 ------------------------------------------------------------------------------------------------------------------------------ Q35:.) For 75. MR’s target contribution is 10 per cent above fixed cost which is Rs.00.18111.000 Expected average annual sales 50.000 Cost of Goods sold Direct Materials Cost 13. 30. Following is the profitability statement for Toshiba personal computer: Particulars Amount(Rs.840 256 304 320 2. 23.000 Amount (Rs.720 144 . second month 6 per cent and third month 60 per cent.00. 7. In April MR started work on orders of Rs.40.00.00.000 & In June Rs.00.00.000 Cost of Goods Sold(b) 20.000 & In May Rs.) per unit 4.000 1. When quoting a price for a study MR Ltd adds the following contribution on the estimated variable cost: Research Staff 112. A typical study takes three months and uses two types of staff as follows: Type of staff used Proportion of variable costs incurred in Month Month Month Total 1 2 3 ----------------------------------------------------------------------------------------------------------------Research 40% ---60% 100% Tabulating -----100% 100% ----------------------------------------------------------------------------------------------------------------Research staff and tabulating staff account for 80 per cent and 20 per cent respectively of the variable costs of a study.08.00. For calculation of monthly income the value of an order is divided on the basis of first month 34 per cent.000. by MR for work to start in June to achieve the target contribution in June.50 per cent of Variable Cost.00.16. Rs.00.000 units Revenues (A) 30.000 R & D Costs 1. Tabulating Staff 50 per cent of VC.28.Contribution:.A:.Compute Samsungs cost reduction target. 40.40.50.Given the following information . Answer:.000 per month.000 Direct manufacturing labour costs 1. Rs.000 Direct machining costs (Fixed) 2.MR Limited undertake market research for clients. 500 Required return on sales 20% Product life 3 years Current feasible cost Rs. Expected market price Rs. Calculate the value of additional orders which should be received.92.If Samsung believes it-can reduce the cost of the modem by no more than 18% is this a feasible product for Samsung? Why or Why no? ------------------------------------------------------------------------------------------------------------------------------------------- Q34:.6. Rs.26.000 Manufacturing Overheads cost 2.Toshiba manufacture on brand of personal computers calles Toshiba. Additional order:.Rs.50.18.80.000 units B:.

600 Full product Costs ( D = B + C) 3. The following tables compare the direct costs and the manufacturing overhead costs and cost drivers of Toshiba and Toshiba II. Quantity of Cost Driver for Explanation for Quantity Driver Cost Driver Quantity of Cost Explanation for quantity of Cost Driver Toshiba . Toshiba expects to make and sell 1. Toshiba can use the machine capacity to produce 100. Toshiba is discontinued in its place.000 3. highly reliable machine with fewer features that meets customers price expectations and achievers target cost.00. Their goal? To design a high-quality.00. (iii) Manufacturing Overhead Cost = Ordering and Receiving cost + Testing and inspection Cost = Rework Cost.000 Toshiba II units in 2003 on account of the reduction in prices.? ------------------------------------------------------------------------------------------------------------------------------------------- Q36.000 400 Marketing costs 72.00.000 80 Customer Service Costs 6.00. Direct Cost Category Costs per unit in Rs.000 400 Operating income ( A –D) Following further information has been provided:(ii) No opening closing inventory.00. Required:(1) Compute the target cost? (2) Compute difference between target and allocable cost. Toshiba Toshiba II Explanation of Costs for Toshiba II 1 Direct materials 1840 1540 2.000 units of Toshiba II. Toshiba II has fewer component s than Toshiba and is easier to manufacture and test. Toshiba II will require less labour and assembly time. Direct manufacturing 3.00.Toshiba’s value engineering team focus their cost-reduction efforts on analyzing the Toshiba design. Toshiba introduced Toshiba II.00. Direct machining Costs 256 304 212 228 The Toshiba II design will use a simplified main printed circuit board.000 160 processor 3. The new design will enable Toshiba to manufacture each unit of Toshiba II in less time than a unit of Toshiba. (iv) Toshiba expects its competitors to lower the prices of PCs that compete against Toshiba by 15%.000 96 Distribution Costs 60. fewer components and no audio features.60.000 880 Operating Costs ( C) 27.Design Cost of product and 1.00. Toshiba’s management Delivers that it must responded aggressively by reducing Toshiba’s price by 20%.00.00.00.000 Toshiba units manufactured and sold in 2002.20. In place of the 75.

Further there is a change in the non.000 units 80. The annual .hours 22.000 $400. 400 per unit reworked.000 units $400.250 orders for each of the 450 components in Toshiba Cost per order Rs.00. 8. Mayfield can sell whatever output it produces. Toshiba II will have a lower rework rate of 6.000 Toshiba will place 50 orders for each of the 425 components in Toshiba II Toshiba II is easier to lest and will require 15 testing hours per unit.000 testing hours p.50.000 Toshiba places 50 21. Mayfield has no other variable costs.000. 6.000 Required:Determine whether Toshiba achieves the Target Cost? -------------------------------------------------------------------------------------------------------------------- THROUGHPUT CONTRIBUTION Q37-: Theory of constraints throughput contribution relevant costs. The following requirements refer only to the preceding data.00. The rework cost is Rs.00.5% because it is easier manufacture.000) $8 per unit $5 per unit Each cabinet sells for $72 and has direct materials costs of $32 incurred at the start of the machining operation. Testing.000 – 80.000 Marketing Costs 3.000 units. Units reworked 6.u.000 Distribution costs 1. Cost per testing hour is Rs. 3.500 3. 160 Toshiba required 30 15.00. Machining Finishing Annual capacity 100.00.000 units Annual production 80.00. there is no connection between the requirements.60.Service Costs 60. Mayfield is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1.000 Customer. Number of orders 22.000 Design of Product & Process cost 1.500 2.Toshiba II Used by Toshiba II 1. $400.000 Fixed operating costs $640.000-80.20.000 (Excluding direct materials) Fixed operating costs per unit produced ($640. It provides the following information.00. The rework rate is 8% of the units manufactures. The Mayfield corporation manufactures filing cabinets in two operations: machining and finishing.manufacturing cost as follows: R&D 80.

4. Should Mayfield implement the change? Show your calculations. Bret Hart.800 Variable manufacturing overhead 2. 5:.How much would use of variable costing change Hart’s bonus each month if the same 0. which includes an adjustment to cost of goods sold for the total manufacturing variances occurring in that month .000 units and cost $5. No marketing costs are incurred by the Waterloo plant. Ontario.5% figure were applied to throughout costing operating income? . The actual unit production and sales figures for the first months of 2003 are January February March Production Sales 3. February and March under absorption costing What bonus is paid each . Variable manufacturing overhead is allocated to vehicle on the basis of assembly time. Operating income is calculated using absorption costing. a vice president of Mapale Leaf Motors.000 per year. Should Mayfield acquire these tools? Show your calculations.000. is the manager of the Waterloo plant. Fixed manufacturing overhead in 2003 is allocated on the basis of the standard assembly time for the budgeted normal capacity utilization of the plant. Maximum productive capacity per month is 4.Explain the differences in Hart’s bonuses in requirements 2 and 3.900 3. The standard assembly time per vehicle is 20 hours.The Waterloo.How much would use of throughout costing change Hart’s bonus if the same 0. The Wasterloo plant ”Sells” each Lcarus to maple Leaf’s marketing subsidiary at $16.000 per vehicle. The budgeted monthly fixed manufacturing overhead is $7. Maple Leaf Motors prepares absorption-costing income statements monthly. plant of Maple Leaf Motors assembles the carus motor vehicle. His compensation includes a bonus that is 0.500.5% of quarterly operating income.200 Assume no direct materials variances .800 3. The standard unit manufacturing cost per vehicle in 2003 is Direct materials $6. and no manufacturing overhead spending or efficiency variances in the first three months of 2003. no direct manufacturing labor variances.000 2.cost of these jigs and tools is $30.1:.5% figure were applied to variable costing operating income? 4:.000 Direct manufacturing labor 1.000 vehicles.Compute (a) the fixed manufacturing overhead cost per unit and (b) the total manufacturing cost per unit. 2003 there is Zero beginning inventory of Lcarus vehicles. the budgeted normal capacity utilization is 3.400 2. On January 1.200 2. ---------------------------------------------------------------------------------------------------------- THROUGH PUT CONTRIBUTION Q38-:.000.Compute the monthly operating income for January.month to Bret Hart? 3:. 2:. In 2003.000 vehicles per month. Required:.000 Fixed manufacturing overhead? The Waterloo plant is highly automated. the production manager of the machining department has submitted a proposal to do faster setups that would increase the annual capacity of the machining department by 10.

The throughput per hour of the three processes is 12.Material costs ) per time period --------------------------------------------------------------------- . The capacity of Corrie plant is restricted by process alpha. 4.000 units of X.B and C.u. (b) Calculate how much the company could spend on equipment to improve the throughout of process B if this wished to recover its costs in the following time periods. ----------------------------------------------------------------------------------------------------------------------------- Q41-:. 48 week a year.Y and Z.Corrie produces three products X.& material cost$ 30 p. Conversion costs are planned to be $24. Selling prices and material costs for each product are as follows: Product Selling Price Material Cost Throughput contribution $ per unit $ per unit $ per unit X 150 70 80 Y 120 40 80 X 300 100 200 Conversion costs are $720. A. Requirements:(a) Determine the throughout accounting (TA) ratio per day. which passes through three different processes.200 units of Z.Products can also be ranked according to the throughput accounting ratio(TA Ratio) TA Ratio Throughput contribution on value added per time period --------------------------------------------------------------------Conversion cost per time period (sales .200 units of X per hour. --------------------------------------------------------------------------------------------------------------------- Q39-:. Requirements:(a) Calculate the profit per day if daily output achieved is 6. 6 day week. 1.WAQ produces a single product X. The SP of “X”is $ 150 p. Process alpha is expected to be operational for eight hours per day and can produce 1.500 units of Y and 1.10 and 15 units of X respectively.6:. 2 years 12weeks (c ) Calculate the revised TA ratio if this money is spent.Outline different approaches Maple Leaf Motors could use to reduce possible undesirable behaviour associated with the use of absorption costing at its Waterloo plant.000 per day.000 per week.u. The company works an 8 hour day. ---------------------------------------------------------------------------------------------------------------------------- Q40-:.500 units of Y per hour and 600 units of Z per hour. (d) In the absence of demand restrictions for the three products advise Corrie management on the optimal production plan. (b) Determine the efficiency of the bottleneck process given the output in (a) (c) Calculate the TA ratio for each product.

The equipment sells for $40. The new method will increase installation costs by $50.000 per unit (installed) and has direct materials costs of $ 15. The new method would cost an additional $50 per unit and would allow Colorado to manufacture 20 additional units a year. Required:1. A new installation technique has been developed that will enable Colorado’s engineers to install 10 additional units of equipment a year. One proposal is to evaluate and compensate workers in the manufacturing and installation departments on the basis of their productivities. throughput contribution. This change would enable Colorado to install 320 units of equipment each year.000.(Theory of constraints.000 each year. Additional information on the manufacturing and installation departments is as follows (capacities are expressed in terms of the number of units of electronic testing equipment): Equipment Equipment Manufactured Installed Annual capacity 400 units per year 300 units per year Equipment manufactured and installed 300 units per year 300 units per year Colorado manufactures only 300 units per year because the installation Department has only enough capacity to install 300 units. 4. If Colorado makes the change. Should Colorado implement the new method? Show your calculations. . Do you think the new proposal is a good idea? Explain briefly. it will implement the new design on all equipment sold.0 Profit will be maximized by manufacturing as much of product B as possible. PRODUCT A PRODUCT B $ Per hour $ Per hour Sale Price 100 150 Material Cost (40) (50) Conversion Cost (50) (50) Profit 10 50 TA RATIO 60/50 = 1. -------------------------------------------------------------------------------------------------------------------- Q42-:. the more profitable the company.000 per unit. Colorado is considering how to motivate workers to improve their productivity (output per hour).2 100/50=2. 2.(labour + Overhead) per time period This measure has the advantage of including the costs involved in running the factory>The higher the ratio. Colorado’s designers have proposed a change in direct materials that would increase direct materials costs by $2. Should Colorado implement the new techniques? Show your calculations. 3. Colorado’s engineers have found a way to reduce equipment manufacturing time. There is no connection between the requirements. All costs other than direct materials costs are fixed. relevant cost). Colorado industries manufactures electronic testing equipment Colorado also installs the equipment at customers’ sites and ensures that it functions smoothly. Should Colorado use the new design? Show your calculation. The following requirements refer only to the preceding data.

1:.07 per gram of mixture. There is no connection between the requirements.000.10 per tablet The Mixing Departments makes 200.000 hours available In each of mixing and tablet making) 300. 4:. Should Aardee implement the new method? Show your calculation.An outside contractor makes the following offer. quality.000 grams of direct materials mixture(enough to make 400.000 tablets Fixed operating costs(excluding direct materials) $16.000 grams of mixture. 3:.5% of the direct materials mixture is lost in the tablet-making process. The following requirements refer only to the preceding data. Should Aardee accept the company’s offer? Show your calculations. These losses can be reduced to zero if the company is willing to spend $9. The estimate that the 10. Aardee incurs $156.000 per .000 $ 39. If Aardee will supply the contractor with 10. Should Aardee accept the company’s offer? Show your calculations.000 / 200. All direct materials costs are incurred in the Mixing Department.000 tablets) because the Tablet-Making Departments has only enough capacity to process 400.5% loss during the tablet-making process at $0. Each tablet sells for $1. throughout contribution. The company will charge $0.000 tablets currently being lost would be saved. relevant costs. 2:. Aardee industries manufactures pharmaceutical products in two departments: Mixing and Tablet –Making.000 Fixed operating costs per tablet ($16. $39. Mixing Tablet Making Capacity per hour 150 grams 200 tablets Monthly capacity (2.000 grams of mixture processed.500 tablets for Aardee following for the normal 2.5 gram of direct materials.Another company offers to prepare 20.000 in direct materials costs.Aardee’s engineers have devised a method that would improve quality in the tablet-making operation. The modification would cost $7.000 grams 400.12 per tablet.------------------------------------------------------------------------------------------------------------------Q43:.000 tablet from the 200.000 tablets.000 grams of mixture in its mixing opertion.All costs other than direct materials costs are fixed costs.Suppose that Aardee also loses 10. Each tablet contains 0. Additional information on the two departments follows.000 grams of mixture a month from direct materials Aardee supplies.000 a month.Theory of Constraints. 2.000 tablets Monthly production 200.08 per gram $0.000 grams 390.000 / 390. The tablet – Making Department manufactures only 390. the contractor will manufacture 19.000) $0.

Direct materials (variables per unit)…………………………… $88 Direct manufacturing setup.85.000 units per year. tube cutting and welding. Alternative1: Leaving the process unchanged but starting enough units in the tube. Committed costs of quality activities follows:Design of product and process costs……………………………………. Billington can sell all output it can produce at $180 per frame.month in quality-improvement methods.cutting operation) Full costs. 5:. It would increase the unit-level costs per unit in the tube.Spending an additional amount on training to reduce scrap in the tube. Unit level manufacturing costs at the welding department are $43. Billington designers are considering several alternative improvements to reduce scrap in the tube. Inspection and testing costs…………………………………………………. 10 Full cost per unit …………………………….50 per unit. The tube-cutting and welding process have a practical capacity of 150. any defective units it produces are scrapped.$ 220.Which alternative 1 or 2 is more attractive financially? B:. Should Aardee adopt the quality improvement method? Show your calculations.cutting department by $ 10 but would reduce costs in the welding department by $5.000 The demand is very strong.1.cutting department.cutting department so that the Welding departments can operate at procaticla capacity.. Equal $105 per unit. Alternative2:.000 units( 1 percent) normally are scrapped(Scrap is detected at the end of the tube. and materials handling labor……… 7 Equipment rent. Of the 100.000 units started at the tube-cutting department. based on total manufacturing costs incurred through the tube – cutting operation.000 and 100..cutting process.. It begins producing only 100.000.What are the benefits of improving quality at the mixing operation compared with improving quality at the tablet-making operation? ------------------------------------------------------------------------------------------------------------Q44-:. Welders are very highly trained.How much would the company be willing to spend on training and how much would scrap have to be reduced to make alternative 3 as attractive4 as either alternative 1 or 2? .00 units in the tube-cutting department because of the capacity constraint on the welding process. and other overhead(fixed for the year)……. and the welding departments has no scrap.Billington Corporation makes bicycle frames in two processes. $ 105 The tube-cutting department sends its good units to the Welding department.Using a different type of tubing that is more resistant to damage and would reduce scrap by 80 percent. Therefore. Alternative 3:. respectively. Required:Form small groups to respond to each of the following items:A:. Billington’s total sales quantity equals the tube-cutting department’s output.

A. 48 weeks a year.or over allocated conversion costs are written off monthly to Cost of goods Sold.000 Number of finished units sold 20.. Any under. and materials in finished goods but not sold.Back flush costing and JIT production.What other qualitative factors should Bilingtomn consider in making the decision? -------------------------------------------------------------------------------------------------------------Q45.debited to finished goods control • Sale of finished goods Acton’s August standard cost per meter is direct materials $25. produced a single product X. The selling price of X is Rs.debited to inventory: direct and In. ------------------------------------------------------------------------------------------------------------------------------ BACKFLUSH COSTING Q46. Acton uses a JIT production system and back flush costing with three trigger poins for making entries in the accounting system: • Purchase of direct materials.hour day. which passes through three different process. The Acton Corporation manufactures electrical meters.10 and 15 units of X respectively The company works an 8. materials in work in process. there were no beginning inventories of direct materials and no beginning or ending work process. Required:(i) Determine the throughout accounting (TA) ratio per day.000 Continuations of Previous Question:. the completion of good finished units of product and the sale of finished goods. Continuations of Previous Question:. and conversion costs $20. Any under-or over allocated conversion costs are written off monthly to Cost of goods Sold. (ii) Calculate how much the company could spend on equipment to improve the throughout of process B if it wished to recover its costs in the following time periods.Z Ltd.000per week.C:.Assume the same facts as in Previous question except that Road Warrior now uses a backflush costing system with the following two trigger points: Purchase of direct (raw) materials Sale of finished goods The inventory Control account will include direct materials purchased but not yet in production. Conversion costs are planned to be Rs. For august.b150 per unit and its material cost is Rs.B and C. The through out per hour of the three processes is 12.process control • Completion of good finished units of product. 6 days a week.Assume the same facts as in last question . 30 per unit. The following data apply to August manufacturing: Direct materials purchased $550. (a) 2 years (b) 12 weeks. 24. (iii) Calculate the revised TA ratio if this money is spent. Required:- .000 manufactured 21. No conversion costs are inventioned.000 Number of finished units Conversion costs incurred $440. except now Road Warrior uses only two trigger points.

WIP or finished goods. There is only one trigger point and that is when the entry to the cost of goods sold account is required when the goods are sold.Prepare summary journal entries for August including the disposition of under – or over allocated conversion costs.300 units were produced and sold and conversation costs of {7.500 C {23. which includes material of {25.220 CREDIT Expense creditors 20.990 Conversion costs incurred {20.RM uses back flush accounting in conjunction with JIT. Solution for 1 trigger point – When goods are sold (method) This is the simplest method of back flush costing.20 for conversion costs.220 Being the actual conversion costs incurred (b) DEBIT Costs of goods sold (4.105 CREDIT Creditors (4.220 Finished goods produced (used in methods 2&3 only) 4. What is the debit balance on the cost of goods sold account at the end of control period . During control period 7. Conversion Costs Allocated and Cost of goods Sold. A {16.500 Solution:$ Conversion cost allocated to cost of goods sold a/c = 300x ({55 .500 D {18.500 B {14.Back flush accounting -------------------------------------------------------------------------------------------------------------------- Q48-:. Purchase of raw materials {24.30) 45.370 Being the standard cost of goods sold (c) DEBIT Conversion costs allocated 20.Example: accounting entries at different trigger points The transactions for period 8 20 X 1 for Clive are as follows.000-incurred. (this method assumes that units are sold as soon as they are produced.25) 9. ------------------------------------------------------------------------------------------------------------------ Q47. The standard costs unit is made up of {5.735 CREDIT Conversion costs allocated (4.10 for materials and {4.10) 24. 2:-Post the entries in requirement 1 to T-accounts for Finished goods control. The standard unit cost is {55.220 Being the under or over allocation of conversion costs :.370 CREDIT Cost of goods sold 150 CREDIT Conversion costs control 20.) $ $ (a) DEBIT Conversion costs control 20.20) 20..1:. Conversion Cost Control. The system does not include a raw material inventory control account.850X {9.000 .850 units There are no opening inventories of raw materials.850x {4.850x { 5.900 units Sales 4.

Journal entries are recorded when materials are purchased and when conversion costs re allocated under backflush costing. The company uses a backflushing accounting system with two trigger points: raw materials purchased and goods transferred to finishes goods store.Games R Us manufactures various games. -------------------------------------------------------------------------------------------------------------------- Q50-:.600 (a) Which of the following entries in above question Properly records the cost of goods sold for the month? A:.090. Conversion costs is the only indirect manufacturing cost category currently used.090.000 Work-in-Process $2. Other data for the month Number of completed production units 15.500 Option A is the standard charge.TXl manufactures a single product.March 83.600 Units Sold.Conversion cost incurred 7.000 Direct materials purchased-March $ 2. -------------------------------------------------------------------------------------------------------------------- Q49-:.000 Difference set against cost of goods sold a/c 2.500 Charge to cost of goods sold a/c 14.Finished goods $2.000 Conversion costs incurred $470. Explain how you would modify the accounting system if the company switched to a total JIT system. Standard costs for materials and conversion costs are $40 and $30 per unit respectively.000 C:. Conversion costs.000 B:.090.000 Finished Goods $ 2. At the beginning of March there was no opening inventory of raw materials or WIP and at the end of the month there was no WIP.090.090. For March there were no beginning inventories of direct materials and no beginning or ending work in process.090.000 .000 Cost of goods Sold $2.March $ 800.Cost of Goods Sold $2. Option C is the sum of conversion cost incurred and the standard charge.March 117.000 Raw Materials purchased $630. Prepare specimen journal entries using the data above and the new trigger points(s) Write off the under-or over absorbed conversion costs. Option D results from adding the difference instead of deducting it.Cost of goods Sold $2.000 Number of products sold 14.000 D:.000 Units produced.140.090.000 Standard charge to cost of goods sold a/c (300x{55) 16.Finished Goods $2.000 Requirements:Prepare summary journal entries for March assuming that there was no material cost variances and without writing off under or over absorbed conversion costs.

(b) Which of the following journal entries in above question would be recorded when units are sold for the month? A:.400 D:.000 Answer:.750 75.400 Answer:.Cost of Goods Sold $319.400/80.000untis Units Sold.19.090.October $90.750 Cost of Goods Sold $319.Process $229.750 Conversion Costs Allocated $84.October 75.400 Accounts Payable Control $250.000 X $ 1.Accounts Payable Control $250.000 X$3. Conversion costs is the only indirect manufacturing cost category currently used. Direct materials ($250.(a).26 75.26 = $319. Conversion costs.400 Materials Inventory $250.500 Inventory : Raw and in.13= $ 84.500 B:.000 Answer:.750 Conversion Costs Allocated $84.000) $3.Cost of goods Sold $3.750 .13 Conversion costs($90.Inventory: Raw and In-Progress $ 234.Complete Microfilm Products manufactures microfilm cameras.500 75.750 C:.400 Inventory: Raw and Materials $250.500 Inventory: Raw and In-Process $234.000 X $4.400 Allocated Costs: Direct Materials $250. -------------------------------------------------------------------------------------------------------------------- Q51-:.400 B:. Fro October there was no beginning inventories of direct materials and no beginning or ending work in process. Journal entries are recorded when materials are purchased and when units are sold.13 = $234.400 C:.Allocated Costs: Direct Materials $250.B.400 Direct materials purchased-October $250.000) 1.Work in Process $2.Cost of Goods Sold $319.000untis Selling price $ 10 each (a) Which of the following journal entries in above question properly reflects the purchase of materials in a JIT environment? A:-Inventory: Raw and In –Process $250.500 Inventory: Raw and In-Process $319.400 Units produced-October 80.B.400/80.13 Total $4.500 D:.Accounts Payable Control $250.500 Conversion Costs Allocated $90.

000 filters were produced and shipped. In December 3.400 D:.13 = $250. Required:Prepare journal entries to record December’s costs for the production of the filters. Backflush costing is used with a finished goods trigger point.750 Conversion Costs Allocated $84.800 Answer:80. This results in Product costs being charged directly to cost of goods sold. Vans and trucks. -------------------------------------------------------------------------------------------------------------------- Q52-:. -------------------------------------------------------------------------------------------------------------------- Q53-:.Inventory: Raw and In-Progress Control $234.Cost of goods Sold $319.500 Inventory: Raw and In-Process Control $229.650were recorded.450 and actual conversion costs of $13.800 80.Accounts Payable Control $250.80 Filters are scheduled for production only after orders are received.Finished Goods $340.(c ) Which of the following entries would occur if the only trigger points the production of finished units? A:.400 Finished Goods $340.000 Standard materials costs per unit 60 Standard conversion cost per unit 140 Units produced 3. Materials were purchased at a cost of $8.400 80.800 Required:Record all journal entries for the monthly activities related to the above transactions if backflush costing is used. A backflush costing system is used and standard costs for a filter are as follows: Direct materials $2.Tornado Electronics manufactures stereos.500 Conversion Costs Allocated $ 90.26 =$340.000 X$1.400 Conversion Costs Allocated $90. For April there were no beginning inventories.13 = $90.200 Units sold 2. and are shipped immediately upon completion. Direct Materials are purchased under a just-in-time system.Corry Corporation manufactures filters for cars. Conversion Costs and Direct Materials are the only manufacturing cost accounts.400.750 Cost of Goods Sold $319.000 X$3.000 X$4. All processing is initiated when an order is received.000 B:.800 Accounts Payable Control $250. Additional information is a follows: Actual conversion costs $232. .60 Conversion costs 4.20 Total $6.500 C:.400 Conversion Costs Allocated $90.

000 Conversion costs incurred 422.000 Costs transferred to finished goods 1. 6. how would the amount in your journal entries differ from the journal entries in requirements 1 ? ------------------------------------------------------------------------------------------------------------------- Q56:. 40 and Rs.Under an ideal JIT production system.000 Conversion costs incurred Rs. At the beginning of March there was no opening stock of raw materials or WIP and at the end of the month there was no WIP.Prepare summary journal entries fro April (Without disposing of under allocated or over allocated conversion costs).100 Materials inventory $8. 2:.450 Conversion costs $13.Answer: Materials Inventory $ 8. 4.000 Prepare summary journal entries for March assuming that there were no material cost variances and without writing off under or over absorbed conversion costs.000 Costs of goods sold 1. -------------------------------------------------------------------------------------------------------------------- Q55:.Assume no direct materials variances.The Littlefield Company uses a backflush costing system with three trigger points: Purchase of direct materials sale of finished goods Completion of good finished units of product There are no beginning inventories.30.650 -------------------------------------------------------------------------------------------------------------------- Q54-:.650 Various credits $13. Each handheld computer takes 6 hours to .000 Number of products sold 14.250. Data for April 2003 are Direct materials purchased $880.650 Cost of goods sold $22.190.Standard costs for materials and conversion costs are Rs.450 Accounts payable $8. Manufactures a single product . Other data for the month Number of completed production units 15.Road Warrior Corporation assembles handheld computers that have scaled – down capabilities of laptop computers. The company uses a backflash accounting system with two trigger points .450 Conversion costs $13.000 Required 1:.000 Raw Material purchased Rs.X Ltd.000 Conversion costs allocated $400. raw materials purchased and goods transferred to finished goods store.000 Direct materials used 850.70. 30 per unit respectively.

400 units. two trigger points. Conversion Costs Allocated and cost of goods Sold. and materials in finished goods but not sold.000 Conversion costs incurred $723.Post the entries in requirements 1 to T-accounts for applicable inventory. Any under-or over allocated conversion costs are written off monthly to Cost of goods Sold. how would the amounts in your journal entries differ from those in requirements 1 ? (a) The Backflush costing.600 Conversion costs allocated 750. Required:1:. Direct and in-Process Conversion Costs Control. 2:-Post the entries in requirement 1 to T-accounts for Finished goods control. No conversion costs are inventioned.Prepare summary journal entries for August 2003 ( without disposing of under or over allocated conversion Cost).733. Conversion Cost Control. When finished goods are sold.800 finished units in August 2003 and sold 26. Road Warrior uses a Jit production system a backflush costing system with three trigger points: Purchase of direct (raw)Materials Sale of finished goods Completion of good finished units of product There are no beginning inventories of materials or finished goods.Under an ideal JIT production system. the completion of good finished units of product and the sale of finished goods. two trigger points. Road Warrior produced 26. Any under. materials purchase and sale ( continuation of previous question).Prepare summary journal entries for August including the disposition of under – or over allocated conversion costs.assemble. 3:. -------------------------------------------------------------------------------------------------------------------- BALANCE SCORE CARD . completion of production and sale ( continuations of last question) Assume the same facts as in last question . The actual direct materials cost per unit in August 2003 was $102.754. ( B) The backflush costing.or over allocated conversion costs are written off monthly to Cost of goods Sold. Required:1:. the backflush costing system “pulls through” standard direct materials costs ($102 per unit) and standard conversion costs ($28 per unit).400 Road Warrior records direct materials purchased and conversion costs incurred at actual costs.600 Direct (raw) materials used 2. materials in work in process. 2:. The following data are for August 2003: Direct (Raw ) Materials purchased $2. except now Road Warrior uses only two trigger points. Assume the same facts as in Previous question except that Road Warrior now uses a backflush costing system with the following two trigger points: Purchase of direct (raw) materials Sale of finished goods The inventory Control account will include direct materials purchased but not yet in production. Conversion Costs Allocated and Cost of goods Sold. and the actual conversion cost per unit was $27.

The remaining 40% of the overall market are “Price shoppers” who look to buy the cheapest gasoline available. --------------------------------------------------------------------------------------------------------------------- BALANCE SCORE CARD Q58:. Clatex determines that 60% of the overall gasoline market consist of “ service –oriented customers. the ability to pay by credit card. 2.000 10% 94 points 91% 99% 88% $95. such as a clean facility a convince store.600 in employee training in 2002.8% 95 points 91% 100% 90% Customer Perspective Increase market share Market share of overall Gasoline market Internal Business Process Perspective Improve gasoline quality Quality index Improve refinery Refinery reliability index (%) Performance Ensure gasoline Product availability index (%) Availability LearningandGrowth Perspective Increase refinery Process Percentage of refinery Processes with advanced Controls 1. refines gasoline and sells it through its own Gas stations.000. 5. 4. On the basis of market research.000 $65.000 $67.000 9. from a total of 160 employees. Is “ market share of overall gasoline market” the correct measure of market share? Explain briefly. Caltex’s strategy is to focus on the 60% of service oriented customers. and high substance premium fuel.000. For brevity the initiatives taken under each objective are omitted.Q57:. friendly employees. Is there a cause. Was caltex successful in implementing its strategy in 2004? Explain your answer. Explain how caltex did not achieve its target market share in the total gasoline market but still exceeded its financial targets.000.Caltex.and – effect linkage between improvements in the measures in the internal business process perspective and the measures in the customers perspective? That is would you add other measures to the internal business process perspective of the customer perspective? Why or why not? Explain briefly.” medium to high income individuals who are willing to pay a higher price for gas if the gas stations can provide excellent customer service. Inc. eight employees resigned during the year and were replaced with new ones. Target Actual Objectives Measures Performance Performance Financial Perspective Increse shareholder value Operating income changes From price recovery Operating income changes From Growth $90. a quick turnaround. 3. Employees succeeded in introducing five innovative ideas for which management gave . Caltex’s balance scorecard for 2004 follows.Alan enterprises spent $ 28. Would you have included some measure of employee statislactionand employee training in the learningandgrowthperspective? Are these objectives critical tocaltex for implementing its stategy? Why or why not? Explain briefly. Do you agree with Caltex’s decision not to include measures of changes in operating income from productivity improvements under the financial perspective of the balanced scorecard? Explain briefly.000.

The company’s sales amounted to $630.700. Oceano T-shirt company sells a variety of T-shirts. Selling price $40. The company has a total asset of $243.000 recorded as processing time. production efficiency will increase by 7%.2003 and 2004. Defective products amounted to 192 units from a total of 2.000. -------------------------------------------------------------------------------------------------------------------- Q60:.Strategy balanced scorecard. It has been generally regarded as a superior machine. Fixed costs amount to $129.them recognition and prizes amounting to $7.sales will increase by 18% . and productivity components of changes in operating income between 2003 and 2004.90 Administrative costs depend on the number of customers that Oceano has created capacity to support. Calculate the growth price-recovery.000 $68.450.400 units produced. Meredith has designed the D4H machine for 2003 to be distinct from its competitors. for simplicity. Meredith corporation makes a special-purpose machine D4H used in the textile industry.500.600 29. price-recovery.400 Administrative cost per customer $2 $1.500 from a total of 25.000 $42.000 Number of T-shirts lost 400 300 Number of T-shirts sold 19. 2002 2004 Number of T-shirts purchased 20. 2.000 .000 from a market which is around 9 times this size. Oceano presents the following data for its first two years of operations. Total assets will remain at the same level. and productivity components). not the actual number of customers served.3 out of 50 major customers have gone bankrupt leaving an uncollectible bad debts of around $ 19. 1.500 and general and administration costs amount to $87. Comment on your results in requirement 1. Bad debts will be the same amount.700 Average selling price $15 $14 Average cost per T-shirt $10 $9 Administrative capacity in terms of Number of customers that can be Served 40.000 36. Sales commission is at 6%. Productive time amounted to 22. ------------------------------------------------------------------------------------------------------------------------ Q59:. Meredith presents the following data for 2002 and 2003. Variable cost of production amounted to 56% of sales.000 Administrative costs $80.although market will not change in total.000 30. 2002 2003 1. This is in addition to the employee related costs stated above. and variable costs will decrease by 8% fixed costs will increase by 3% G & A will increase by 4% . assume that all purchasing and selling costs are included in the average cost per T-shirt and that each customer buys one T-shirt. Required: Prepare a balanced scorecard for 2002 and its forecast for 2003. The company expects to increase the employee related costs by 25% in 2003 but hope that defects will be reduced by 30%.(Growth. Units of D4H produced and sold 200 210 2.

000 13. Software implementation support capacity(in units work)90 90 . Snyder corporation is a small information systems consulting firm that specializes in helping companies implement sales management software. Cost per software implementation labour-hour $60 $63 5.000 $8.000 4. but it wants to reduce direct materials usage per D4H machine in 2003.Design staff 12 12 12.000 7.500 10.To compete.900 11.000 310.100 8.000 4. The market for snyder’s products is very competitive . balanced scorecard service company). Describe briefly key elements that you would include in merediths’s balanced scorecard and the reasons for doing so. snyder must deliver quality service at a low cost snyder bills clients in terms of units of work preformed. 2002 2003 1. which depends on the size and complexity of the sales management system. Conversion cost per unit of capacity $8.000.000 $20. Is Meredith’s strategy one of product differentiation or cost leadership? Explain briefly.025.000 $9.000 $101.000. Selling price $50.000 Meredith produces no defective machines.200. Design cost per employee $100.000 $48. Manufacturing capacity in units of D4H 250 250 6. Snyder presents the following data for 2002 and 2003. Selling and customer-service capacity cost per customer $10. at the of each year management uses its discretion to determine the number of design staff for the year.3. conversion costs in each year depend on production capacity defined in terms of D4H units that can be produced not the actual units produced.50 5. Units of work performed 60 70 2.Total conversion costs $2. Total design costs $1. Software implementation labor-hours 30. Total selling and customer-service costs $1.000 32.000 $1. ----------------------------------------------------------------------------------------------------------------------- Q61:. The design staff and its costs have no direct relationship with the quantity of D4H produced or the number of customers to whom D4H is sold. 1.(Strategy.000 3.000 $940.212. Direct materials(Kilograms) 300. Direct materials cost per kilogram $8 $8.Selling and customer-service capacity 100 customers 95 customers 9. Selling and customer-service costs depand on the number of customer that Meredith can support not the actual number of customers it serves Meredith has 75 customers in 2002 and 80 customers in 2003.

Software implementation support capacity cost per unit of work $4.Describe key elements you would include in snyder’s balanced scorecard and your reasons for doing so. and productivity components(continuation of Last Quesation).000 $130.000 $390.000 $369. Calculate the operating income of snyder corporation in 2002 and 2003. If you could not calculate the amount and cost of unused capacity indicate why not. based on units of work performed in 2003. Suppose that during 2003 the market for implementing sales management software increases by 5% and that snyder experiences a 1 % decline in selling prices. 1. At the start of each year management uses its discretion to determine the number of software development employees.There possible. 1. Is snyder corporation’s strategy one of product differentiation or cost leadership? Explain briefly. Number of employees doing software development 3 3 9.000 Software implementation labour-hour costs are variable costs. How successful has snyder been in implementing its strategy? Explain . calculate the amount and cost of unused capacity for (a) software implementation support and (b) software development at the beginning of 2003.Identifying and managing unused capacity(continuation of Last question). Software implementation support costs for each year depend on the software implementation support capacity(defined in terms of units of work) that snyder chooses to maintain each year. Refer to the snyder corporation information in Exercise 13-24.000 $4. It does not vary with actual units of work performed that year.100 8.000 7. Total cost of software implementation support $360. LAST QUESTION:1.Analysis of growth price-recovery. 2. what do these components indicate? -------------------------------------------------------------------------------------------------------------------- Q62:.000 10. Required: Calculate how much of the change in operating income from 2002 to 2003 is due to the industry market size factor cost leadership and product differentiation. The software development staff and costs have no direct relationship with the number of units of work performed. 2. Software development cost per employee $125. -------------------------------------------------------------------------------------------------------------------- Q63. Comment on your answer in requirement 2. Calculate the growth price-recovery and productivity components that explain the change in operating income from 2002 to 2003. Assume that any further decrease in selling price and increases in market share are strategic choices by snyder’s management to implement their cost leadership strategy. .6. Total software development costs $375. 1.

000 $67.000 from growth Customer Prespective Increase market share Market share of overall 10% 9. Caltex Inc refines gasoline and sells it through its own caltex gas stations on the basis of market research. Snyder in fact does not eliminate any of its unused software implementation support capacity. Caltex’s balanced scorecard for 2004 follows. Target Actual Objectives Measures Performance Performance Financial Perspective Increase shareholder value Operating income changes $90.a quick turnaround the ability to pay by credit card and high octane premium fuel.000 $95.2.000. Suppose snyder can add or reduce its software implementation support capacity in increments of 15 units.000 From price recovery Operating income changes $65.000. Was caltex successful in implementing its strategy in 2004? Explain your answer. The remaining 40% of the overall market are “priceshoppers” who look to buy the cheapest gasoline available. Caltex’s strategy is to focus on the 60% of serviceoriented customers. Caltex determines that 60% of the overall gasoline market consists of “service-oriented customers” medium-to high-income individuals who are willing to pay a higher price for gas if the gas stations can provide excellent customer service such as a clean facility a convenience store friendly employees.Kaplan adapted). What is the maximum amount of costs that snyder could save in 2003 by downsizing software implementation support capacity? 2. (R. Why might snyder not downsize? Problems -------------------------------------------------------------------------------------------------------------------- Q64:.8% Gasoline market Internal Business Process Perspective Improve gasoline quality Quality index 94 points 95 points Improve refinery Refinery reliability index(%) 91% 91% Performance Ensure gasoline Product availability index (%) 99% 100% Learning and growth perspective Increase refinery process Precentage of refinery 88% 90% Capability processes with advanced Controls 1. For brevity the initiatives taken under each objective are omitted.000.000. .Balanced scorecard.

Strategic analysis of operating income.90 per customer cost per customer (line 5÷ line 4) 7. At the start of 2005. Is “market share of overall gasoline market” the correct measure of market share? Explain briefly. Halsey purchased 930 distinct designs in 2004 and 820 distinct designs in 2005.000 $204.000 9. Selling and customer-service capacity 51.000 $296. Is halsey’s strategy one product differentiation or cost leadership? Explain . for simplicity.700 6. Would you have included some measure of employee satisfaction and employee training in the learning and growth perspective? Are these objectives critical to caltex for implementing its strategy? Why or why not? Explain briefly. 2003 2005 1. Do you agree with caltex’s decision not to include measures of changes in operating income from productivity improvements under the financial perspective of the balanced scorecard? Explain briefly. Purchasing and administrative capacity 980 850 8. Halsey company sells women’s clothing. 1. Total purchasing and administrative costs depend on purchasing and administrative capacity that halsey has created (defined in terms of the number of distinct clothing designs that halsey can purchase and administer). Halsey presents the following data for 2004 and 2005.Selling and customer-service capacity $7per customer $6.000 customers 5. Halsey’s strategy is to offer a wide selection of clothes and excellent customer service and to charge a premium price.000 customers 43. Explain how caltex did not achieve its target market share in the total gasoline market but still exceeded its financial targets. Purchasing and administrative costs do not depend on the actual number of distinct clothing designs purchased. Purchasing and administrative capacity $250 per design $240 per design cost per distinct design Total selling and customer-service costs depend on the number of customers that halsey has created capacity to support. Average cost per piece of clothing $40 $41 4. Halsey planned to increase operating income by 10% over operating income in 2004. Is there a cause-and-effect linkage between improvements in the measures in the internal business process perspective and the measures in the customer perspective? That is would you add other measures to the internal business process perspective or the customer perspective? Why or why not? Explain briefly. ------------------------------------------------------------------------------------------------------------------- Q65:.assume that each customer purchases one piece of clothing.000 40. Purchasing and administrative costs $245.000 2. 5. 3. not the actual number of customers that halsey serves.2. Average selling price $60 $59 3. Selling and customer-service capacity $357. Pieces of clothing purchased and sold 40. 4.

unused capacity.000 subscribes in 2003 and that the 2002 percentage of telephone calla received to total subscribes continues in 2003. In 2005.Assume that Cable Galore had 900. 4. customers helpdesk:.Was Winchester’s gain in operating income in 2005consistent with the strategy you identified in requirement 1? Explain briefly. sales increases less than the market growth) are attributable to Winchester’s lack of product differentiation. and (b) customer help-desk costs are discretionary costs. 2:.000 subscribers in 2002.2. If you could not calculate the amount and cost of unused capacity.Engineered and discretionary overhead costs. each customers help-desk representatives worked 8 hours per day for 250 day at a fixed annual salary of $36.000 Operating income for 2005 $4. Does the strategic analysis of operating income indicate Halsey was successful in implementing its strategy in 2005? Explain ------------------------------------------------------------------------------------------------------------------ Q66:. Calculate Halsely’s operating income in 2004 and 2005. 3:.1:.Winchester Corporation manufactures special ball bearning. Calculate the growth price-recovery.000 Add growth components 300.450.000 Further analysis of these components indicates that had the growth in Winchester’s sales kept up with market growth.Provide a brief explanation of why the growth. 1:.Where possible calculate the cost of unused customer help-desk capacity in 2003. 3:. Required:.Is Winchester’s 2005 strategy one of product differentiation or cost leadership? Explain briefly. calculate the costs of unused customer help-desk capacity in 2002 under each of the following assumptions (a) customers help-desk costs are engineered costs.All decreses in market share (that is.500.Do you think customer help desk costs at cable Galore are engineered costs or discretionary costs? Explain your answer. Under each of the following assumptions (a) customer-service costs are engineered costs.Where possible.000. price recovery.Cable Galore. An analysis of Winchester’s operating income changes between 2004 and 2005 shows the following: Operating income for 2004 $3.000 telephone calls from its customers in 2002. and productivity components of changes in operating income between 2004 and 2005. During 2002.Cusotmershelp-desk capacity in 2003 was the same as it was in 2002. and (b) . and productivity components are favorable. Cable Galore received 45. had 750. it plans to grow and increase operating income by capitalizing on its reputation for manufacturing a product that is superior to its competitors.Cable Galore employees five customers help desk representatives to respond to customers questions and problems. 3. Each call took an average of 10 minutes. the growth component in 2005would have been $750. -------------------------------------------------------------------------------------------------------------------- Q67:. indicate why not.000 Add price-recovery components 400. 2:.000.000 Add productivity components 350. a large cable television operator.

Here’s Westwood’s data for 2002 and 2003. The elements that should be included in its balanced scorecard are.000 $725. 2004 2003 1. The balanced scorecard should describe Westwood product differentiation strategy.000 Westwood produced no defective units and reduce direct material usage per unit of KE8 in 2003.000.000 123.000 10. • Internal business perspective manufacturing quality order delivery time on time delivery and new product features added. units of KE8 produced and sold 40.service costs $720. Calculate how much of the change in operating income from 2002 to 2003 is due to the industry-market size factor cost leadership and product differentiation.000 42. Manufacturing capacity for KE8 50. . 4. indicate why not. Selling and customer. Westwood corporation makes a high-end kitchen range hood.000 units 50. How successful has Westwood been in implementing its strategy? Explain. Direct material costs per square foot $10 $11 5. -------------------------------------------------------------------------------------------------------------------- Q68-:. If you could not calculate the amount and cost of unused capacity. Cost per customer of selling and customer service capacity (Row 9-Row 8) $24.customer service costs are discretionary costs. Describe briefly the elements you would include in Westwood’s balanced scorecard. Selling and customer. • Learning and growth perspective Development time for new products and improvements in manufacturing processes.000 $1. Solution:- 1.000 2.000 $25. Westwood has 23 customers in 2002 and 25 customers in 2003.000 units 6.Following a strategy of product differentiation. Suppose during 2003 the market for high-end kitchen range hoods grew at 3% in terms of number of units and all increases in market share (that is increases in the number of units sold greater than 3%) are due to Westwood’s product differentiation strategy. Selling and customer-service capacity 30 customers 29 customers 9. *Financial perspective increase in operating income from higher margins on KE8 and growth • Customer perspective market shares in high-end market and customer satisfaction. 3.000 4. KE8. Conversion costs per unit of capacity (Row 6 – Row 5) $20 $22 8. Selling price $100 $110 3. Direct materials (square feet) 120.100. Conversion costs $1. Calculate the growth price-recovery and productivity components that explain the change in operating income from 2002 to 2003. Conversion costs in each year are tied to manufacturing capacity.service costs are related to the number of customers that the selling and service functions are designed to support.000 7. Required:2. 5.

Until we do a formal survey of employees and customers sometime next year. $110 per unit X 42.000 Total costs 2.Output sold in} X Price {in 2003 2002} in 2002 = (42.000 3.000 units) x $100 per unit = $200. ft ) 1. These scores will be an embarrassment for us at the division managers meeting next month.000.000 F { Actual units of input or} Cost effect { Capacity that would Actual units of} Of growth = {have been used to produce inputs or capacity} Input Component {2003 output assuming to produce} X price {The same input.000 Operating income $1. We need to get these numbers up” Ptricia knows that the employee and customer satisfaction scores are subjective but the procedure she used is identical to the procedures she has used in the past.000 $1.620.000 units .000 Selling and customer. $11 per sq.000 F Growth component Revenue effect Of growth Component 1. ft. Operating income for each year is 2002 2003 Revenues ($100 per unit X 40.000 units.353.000 units instead of the 40.000 Conversion costs ($20 per unit X 50.000 units.000 1.000 units) 1. $22 per unit X 50.100.000 Change in operating income $362. X 123.service costs ($24.output 2002 output} in 2002 {Relationship that existed in 2002 } Direct material costs that would be required in 2003 to produce 42.000 per customer X 29 customers) 720.000 Sq.200.40.000 {Actual units of Actual units of} Output {Output sold . X 12. ft.ft.000 $4.000 sq.2.920.000.000 Costs Direct material costs ($10 per sq. assuming the 2002 input-output relationship continued into 2003 can be calculated as follows: “My own expenence indicates that we are doing well on both these dimensions.000 per customer X 30 customers.000 units) $4.442.000 725.178. I think we are doing a disservice to this company and ourselves by reporting such low scores for employee and customer satisfaction.080.000 units produced in 2002. $25. She knows from the comments she had asked for that the scores represent the unhappiness of = .

A Proposal has been received from Wilco Foods an outside vendor who is willing to supply cafeteria services.60. other costs incurred by Wilco to supply the cafeteria services are variable and equal 75% of revenues. -------------------------------------------------------------------------------------------------------------------- DOWN SIZING Q69:. Under this arrangement. Mayfair would be expected to cover equipment-repair costs in a addition.000. Wilco plans to charge $5.000 annually . All. plus an additional $200 for beverages and deserts. Two alternatives are being evaluated: downsize the cafeteria staff and offer a reduced menu or contract with an outside vendor. This payment would be made at the end of the year.Is the Wilco Foods proposal more advantages to Mayfair Corporation than the downsizing plan? Show your calculations.Wilco would pay Mayfair 4% of all revenues received above the breakeven point. Mayfair expects daily sales of 150 sandwiches or salads at a higher average price of $ 3. Mayfair is in the process of reviewing the cafeteria services because cost cutting measures are needed throughout the organization to keep the prices of its products competitive.00. Because of the elimination of the entrée.Activity-based costing.An entrée would no longer be offered.00 each. Do you think that the household products division should include subjective measures of employee satisfaction and customer satisfaction in its balanced scorecard? Explain.employees with the latest work rules and the unhappiness of customers with late deliveries. Show your calculations. She also Knows that these problems will be corrected in time.com an internet company that .000 per month for use of the cafeteria and utilities. Josh sanchez is the chief financial officer of bouquets.The daily sales include 100 entrees at $4.(CMA adapted) Mayfair corporation currently subsidizes cafeteria services for its 200 employees. 1:-Determine whether the plan for downsizing the current cafeteria operation would be acceptable to Mayfair Corporation. The plan for downsizing the current operation envisions retaining two of the current employees whose combined base annual salaries total $65. The cafeteria operates 250 days each year and the costs for utilities and equipment maintenance average $30. 4.All other daily sales are expected to average $300.00 each. and prices of the remaining items would be increased slightly. The current cafeteria operation has four employees with a combined base annual salary of $110. --------------------------------------------------------------------------------------------------------------------- Q70:. The cost of all cafeteria supplies is 60% of revenues. Flexible-budget variances for finance function activities.Wilco expects daily sales of 66 entrees and 94 sandwiches or salads.00 for an entrée.Collaborative learning problem Downsizing. 80 sandwiches of salads at an average price of $3. and the average price for the sandwich or salad would be $4.000 plus additional employee benefits at 25% of salary. Mayfair is willing to continue to subsidize this reduced operation but will not spend more than 20%of the current subsidy. 2:. All other conditions of operation would remain the same. the cost of all cafeteria supplies is expected to decline to 50% of revenues.The additional revenue for beverages and desserts is expected to increase to$230each day. Wilco has proposed to pay Mayfair $1.

468 Travel expenses 500 01. Assume you are in charge of travel-claim processing. which is the same as the number of remittances.587 Required: .enables customers to order deliveries of flowers by accessing its Web site. 5. Sanchez is concerned with the efficiency and effectiveness of the finance function. Com’s three finance activities are Finance Activity “World-class” Cost performance Payables S0.71 per invoice Receivables S0. CFO of bouquets COM. Calculate the flexible-budget variance for each activity in 2004.Finance function activities. Hackett’s cost benchmarks for bouquet. What concerns might you have with sanchez using the Hackett benchmark of $1.80 Travel expenses Batch Travel claims 7. He asks Hackett to provide benchmark data of the finance function at “world-class” retail companies (both traditional retail and internetbased retail).58 per travel claim as the keyto evaluate your performance next period? -------------------------------------------------------------------------------------------------------------------- Q72- BENCH MARKING Relevant information with regard to the operation of the sales order department of MM is as follows. He collects the following information for three finance activities in 2004: Rate per unit of Cost driver Activity Cost Activity Level Driver Static budget Actual Receivables Output unit Remittances $0.000 Batch size in terms of deliveries Payables 5 4.1.75 Payables Batch Invoices 2.600 7. Calculate the price and efficiency variances for each activity in 2004. Josh Sanchez.900 2. engages the Hackett group a consulting firm specializing in benchmarking. . benchmarking (continuation of Last question). -------------------------------------------------------------------------------------------------------------------- Q71-:.58 per travel claim Required: .000.Budget Amounts Actual amounts Number of deliveries 1.000 948.1. The following is additional information.40 The output measure is the number of delivers. Static.639 $0.10 per remittance Travel expenses S1. What new insights might arise with the Hackett benchmark data using the amounts in Exercise 7-30? 2.

750 18 24 20 10 72 45 --26 71 IT Sundry Costs Total Volume . • The nature of the business in such that there is some dispatching of part orders to customers Sales literature is sent out to existing and prospective customers by means of a monthly mail shot. • The processing of orders requires communication with the production and dispatch functions of the company. Activity cost matrix-sales order department after the proposed changes Cost element Salaries Stores/ supplies Total Cost Customer negotiations Processi ng of Home $’000 Orders Export Implementing dispatches Sales Literature General admin $’000 $’000 $’000 $’000 $’000 $’000 450 54 300 106 910 2.A team of staff deals with existing customers in respect of problems with orders of with prospective customers enquiring about potential orders. The activity matrix below shows the budget for the sales order department. If the proposed changes are implemented.600 72 40 16 128 6.000 81 8 40 33 162 18.000 pa.500 90 6 80 10 186 2.000 30 10 216 5.000 144 16 120 11 291 5. The cost to the company of this initiative is estimated at $230. Activity cost matrix.sales order department Cost element Salaries Stores/ supplies Total Cost Customer negotiations Processi ng of Home $’000 160 Orders Export Implementing dispatches Sales Literature General admin • $’000 500 90 $’000 80 $’000 100 $’000 90 $’000 20 $’000 50 16 10 8 98 3.200 8 10 20 128 11. There will be cost and volume changes to activities in the sales order department and it is estimated that the following activity cost matrix will result.500 60 10 90 26 76 IT Sundry Costs Total Volume of Activity 70 80 740 2.000 6 20 6 132 1.000 Custo Negotiations Order Orders Dispatches mers MM has decided to acquire additional computer software with internet links in order to improve the effectiveness of the sales order department.

0 102.0 2003 $350.0 300.0a leading computer magazine gave Peach Computer’s main product five stars. its highest rating.0 27.0 In early 2004.4 28.” .0 45.4 22.2 46.You Collect the following financial information (in millions) on computer Power and Peach Computer for 2002 and 2003: Computer Power Peach Computer 2002 Revenues Costs R&D Design Production Marketing Distribution Customer service Total costs Operating income Total assets $400.0 3.0 15.1 Average number of dispatches per order 3. -------------------------------------------------------------------------------------------------------------- Q73-:.0 $240. because of customer-service problems. Peach Computer received high marks for new products in 2003.0 $100.0 36.0 92.0 $160.6 180.The board of directors was recently informed that User Friendly president is resigning.0 18.3 Requirement:Prepare an analysis (both discursive and quantitative/ monetary as appropriate) which examines the implications of the IT initiative.4 112.8 36.EVALUATION MANAGERS.0 280. Cost per customer per year $300 Cost per home order processed $50 Cost per export order processed $60 Cost per dispatch $8 Sales literature cost per customer $35 Average number of orders per customer per year4. Computer Power’s main product was given three stars. You should incorporate comment on additional information likely to improve the relevance of the exercise.6 98.0 21.0 $340.Computer Power’s performance was called “mediocre.7 23.0 75.0 2002 $200.8 8. The analysis should include a benchmarking exercise on the effectiveness of the sales order department against both its current position and the industry standards provided.of Activity Custo Negotiations Order Orders Dispatches mers Recent industry average statistics for sales order department activities in business of similar size.6 82.0 $20. down from five stars a years ago.0 $40. The computer magazine also ran an article on new product introductions.0 $60.6 66.0 16. customer mix and product mix are as follows. An executive search firm recommends the board consider appointing Peter Diamond ( Current president of Computer Power) or Norma Provan (current president of Peach Computer).0 43. ROI VALUE-CHAIN ANALYSIS OF COST STRUCTURE: User Friendly Computer is one of the largest personal computer companies in the world .4 290.0 18.0 2003 $320.0 $360.5 11.

Berkshire produces no defective products.25. Taxes amount to 24% of income.3 bilion dollars. -------------------------------------------------------------------------------------------------------------------- PARTIAL PRODUCTIVITY Q75-:. however.Use the Dupont method of probability analysis to compute the ROI of computer Power and Peach Computer in 2002 and 2003.Compute the percentage of costs in each of the six business-function cost categories for computer Power and Peach Computer in 2002 and 2003.000 525. There were a total of 67 million share outstanding during the year. Planned costs included fixed costs . and pays its 10 top.level employees payable within seven months of the current year based on stock values on june 30th of the current year.level executives.20 $1. Berkshire can use fewer direct manufacturing labor – hours if it is willing to tolerate a larger quantity of direct materials waste. Berkshire management has some ability to substitute direct materials for direct manufacturing labor. Berkshire reports the following data for the past two years of operations: 2004 2005 Output units 375. Its strategy is to produce a quality product at a low cost. Comment on the results. Berkshire can manufacture more parts out of a metal sheet. Stock prices were at $22 at the beginning of the year .1 billion dollars with a 10% increase in variable costs and a 5% reduction in fixed costs.25 . and $27 as of September 30th At the end of the year. Explain your ranking.Comment on the results.35 billion dollars and variable costs amounting to 40% of sales. --------------------------------------------------------------------------------------------------------------------- INCENTIVE SCHEME Q74-:. Planned sales for 2003 amounted to 1. in spite of multi. 2:. amounted to 8 billion dollars with both fixed and variable costs being 12% higher the anticipated level.Enton company compensates its junior employees based on 10% of actual income distributed equally among the 1000 employees payable within 30 days after the and of the year plus 5% of stock appreciation for the year .000 610. but this approach will require more direct manufacturing labor.000 Direct material cost per kilogram $1. in kilograms 450.Berkshire corporation makes small steel parts.million-dollar audits. If workers cut the steel carefully. 3:. Berkshire operates in a very competitive market. Actual sales. 30% of the revised income for the current year and 30% of stock appreciation as of the end September during October of each year. 20% of planned income plus 10% of stock. Revised sales on 9/30th for the year is expected to be 1.appreciation for the 100 mid. Several frauds and manipulation of records were discovered and the stock price plunged to $1.000 Direct materials used. Required: Determine planned and actual income and compute compensation per employee for each group . $26 as of june 30 th .hours.Rank Diamond and Provan as potential candidates for president of User Friendly Computer. Alternatively.Required:1:.

500 Fixed manufacturing cost per unit of capacity $1.000 582. 1. What does TFP tell you that partial productivity measures do not? --------------------------------------------------------------------------------------------------------------- RESPONSIBILITY ACCOUNTING Q76:. can you conclude whether and by how much productivity improved overall in 2005 relative to 2004? Explain.73 $1. To do so.038. Other data: . 19.00 Fixed cost 4.Direct manufacturing labour-hours used 7.500 Wages per hour $20 $25 Manufacturing capacity in output units 600.3 Labour 60 hours at Rs. 16. 2.000 a boat comparable to the one being offered by the customer in part-exchange but which needs no repair. it needs to offer Rs. Compute the partial productivity ratios for 2005. Compute Berkshire corporation’s total factor productivity (TFP) in 2005. 29.000 41. B could then sell that boat for Rs. the customer’s boat is estimated by R to need repairs that will cost: Materials Rs. but deducts the likely cost of repairs) and (ii) from other sources.) .A Boatyard is divided into three profit centers whose managers are rewarded according to results. 35. 2. Brokerage(B) buys and sells second-hand boats: (i) in part-exchange from S (B names the price at which is can buy a comparable boat that is in a suitable conditions for resale to an enduser customer. How might the management of Berkshire corporation use the partial productivity analysis? Required 1. Transactions between these profit centers are frequent. Sales centre(S) buys and sells new boats. Repairs(R) does repairs for (i) B(to put boats into saleable condition) and (ii) other customers.R’s labour rate per hour is made up as follows: Variable cost Rs.000. 15. The following situation arises: S can sell to a customer for Rs. On the basis of the partial productivity ratios alone.500 9. on a normal trading basis.000 a new boat which would cost Rs. 3.000 Manufacturing capacity –related fixed costs $1.a.000 budgeted hours p. Compare Berkshire corporation’s TFP performance in 2005 relative to 2004.50 (based on 20.75 Required 1. If it needs to take part-exchange from a customer in order to sell a new boat.018. it transfers the part-exchanged boat to B at an agreed price. However.000 in part-exchange for the customer’s old boat. 6. Compare the partial productivity rations in 2005 with par-tial productivity ratios for 2004 calculated based on 2005 output produced.000.15 per hour B can buy for Rs.

000 200 9 60 --- . It has been offered an additional contract to supply 10.Profit 4.3. 540] 2:.45% of R’s time is reserved for work from B . 380.000 B. There is a good possibility of an annual renewal there after for the same quantity at the same price.20 each. 3. 7.000 Rs.000 Costs: .Rs. in relation to the above situation. 100 of materials due to a problem not noticed by B or R. It will have completed three years of the contract at 31 st December 1979. 5. ------------------------------------------------------------------------------------------------------------------------------ Q77:.000 machined components DE a year at Rs. (2) Overtime premium is 50 per cent of normal wage rate. to set out the contribution to profit for each profit center that would result. 80. 4.Direct wages—normal 20 Overtime 1 Direct material--.A company has a Six-year contract to supply 100.000. 4000. The sales manager has recommended acceptance of the new contract on the basis of the following calculation for 1980. Profit Forecast Year 1980 Existing contract Contacts DE FG Rs.00 .Rs. (i) Assuming that all estimates and budgets materialised as expected. except that the repairs undertaken by R took an extra 10 hours and Rs. This Second contract appears attractive to the sales manger because: (1) The work would require only 10 per cent additional machine hours and these could be undertaken by working overtime on the existing machines.800/.50 15.80 each. (4) Spare space amounting to 20 percent of the works area is available for the handling and storage of the new components. (3) Sufficient material is in stock to make a year’s supply to the new components and is surplus to any other requirement.Rs.Annual fixed cost is budgeted at: S. [Answer: 1:-Rs.000 You are required. 70.DE --FG --200 --60 --Future DE Rs. Rs.550. (ii) Assuming that all estimates and budgets materialised as in (i).000 machined components FG during the year 1980 at Rs.

85. 180.000. 4.000 less 20 per cent handling charge. ------------------------------------------------------------------------------------------------------------------- Q78:.000 and resold to the original supplier at his current list price of Rs.000 per year. once manufactured packed in circular containers and stored in specially constructed crates lined with “Pretecto”. 5. the premium rate for weekends is 100 per cent of normal wage rate. 8: The spare productions space is at present rented to an adjoining company for Rs. separately for components DE and FG. The films. manufactures a range of films extensively used in the cinema industry. 3: The prod. 85.10. 4: Although only 10 per cent more actual machine hours would be required for components FG. 13.000. Loss:. These crates are manufactured and .4.000 per year and that company would be willing to take a long. Advise about FG order. 2: The machines cost Rs. 5. its value was reduced to NIL for inventory purposes at 31st December. 6: The additional overhead costs in relation to the FG order expected to be incurred amount to Rs.Rent 3 Depreciation 1 Other overhead costs (100% of direct wages) 21 45 Sales income 72 Profit 27 15 25 200 500 580 80 12 25 209 515 580 65 As the management accountant you are asked to review the proposal Year Investigation that: 1: The existing machines have a limited life based on producing a total of 600.000. 5: The labour hours will be worked in both daily overtime and weekends in the ratio of 2:1. The sales manager was not aware of this fact. Due to changed circumstances it could be reconditioned at a cost of Rs. because of change over of tools 2 per cent extra labour hours will be needed.000. 7: The material is stock that it is proposed to use for the first 10. 150. 1977 as being surplus and un sale able at that time.Reel and Roll ltd.000 components FG cost Rs. Prepare a revised profit estimate. Answer:.000 when purchased three year ago.000 when purchased at the start of the contract but new one are priced at Rs. of each component FG is twice as intensive in machine wear as component DE.term lease at this figure.000 components DE: it is unlikely that this total output can be exceeded.000. 15. for each of the years 1980-81.

1. 800 per ton. 4:. continued to manufacture the crates but left their maintenance to pack Knack Associates: 1: The machine will be required.00. 2. Direct materials (including” Pretecto”) 1. . but left their manufactures to Pack Knack Associates: 1: The machine will not be required.40. and it could be currently sold for Rs.000 four years ago and will last for four more years .000 per ton.000 Other miscellaneous costs 31.500 93.It could be currently sold for Rs.40. 2. 50. If Reel and Roll Ltd.000 2.The Department has acquired Separate warehouse space for Rs. the Manager will be transferred to another department . Its original cost was Rs.50. Pack Knack Associates will undertake to manufacture and maintain the crates. 4: Only 10% of all materials will be used.000 per annum.000 Depreciation of machine 30.000. If reel and Roll Ltd. 3: The warehouse space requirements will not be reduced.000 Direct labour 1.maintained by a special department within the company and the department costs last year are as under: Rs.000 costs) Total 3.The machine used in the department cost Rs. but the replacement cost is Rs. 6: The miscellaneous costs will be reduced by 80%.81.00.If the department were closed. It uses only one-half of the space the rest is idle. 3: The warehouse space will be required. 5: Only One worker will be dispensed with and taking the terminal benefit to be met into account the saving will be Rs. continued to maintain the crates. Overheads( Absorbed 20% of direct 48. 1.700 Pack Knack Associates have approached the Reel and Roll Ltd. offering to make all the crates required on a four-year contract for Rs.000 and one-fifth was used last year and included in the material cost.33.000 per annum.200 per ton. 2: The manager will remain in the department.000 Maintenance of machine 7. 15.200 Rent ( Portion of Warehouse) 9.and the terminal benefits to be met will amount to Rs. 2. In that event. 18.700 Adm. 50. 5. The following data are relevant: 1: .000 per annum. 2: The manager will remain in the department. but all the labour force will be made redundant .000 per annum and / or to maintain them for future Rs. 3:.000 Overheads: Department manager 16.A stock of “ protecto” was acquired last year for Rs.700 3.40.000 per annum. 2: .

trimming (40%) Packing process. Product information VG4 UVG2 Production time per unit: Making (minutes) 5. ------------------------------------------------------------------------------------------------------------------------------ ABC COSTING Q79:. Fixed costs will remain unchanged throughout a wide activity range. Required: (a) Using the above information. (c) Additional information is gathered for the period ending 31st March as follows: (i) The making process consists of two consecutive activities. mounding and trimming.25 5. The miscellaneous cost will be reduced by 20%. the remainder are company fixed costs. Assuming that for the four year period there is no significant change envisaged in the pattern of other costs. Packing materials (which are part of the variable packing cost) requirement depends on the complexity of packing specified for each product. VG4U and VG2. Both products are manufactured through two consecutive process-making and packing Raw material is input at the commencement of the making process. conversion (70%).25 Packing ( minutes) 6 4 Production Sales(units) 5000 3000 Selling price per unit($) 150 180 Direct material per unit($) 30 30 (iii) Conversion costs are absorbed by products using estimated time based rates. You are required to evaluate the alternative courses of action with supporting figures of cash flows over the four year period and advise accordingly by Preparing statement of cash receipt and cash disbursement for each of the four year. packing material (30%) . (ii) The proportions of product specific conversion costs (variable and fixed) are analysed as follows: Making Process: moulding (60%). (b) Calculate unit costs for each product. The labour force will continue. Making Packing ($000) ($000) Conversion Cost Variable 350 280 Fixed 210 140 40% of Fixed costs are product specific. The following estimated information is available for the period ending 31st March. The moulding variable conversion costs are incurred in proportion to the temperature required in the moulds.4: 5: 6: 90% of all the materials will be required.The Excel Ltd make and sell two products. The variable trimming conversion costs are incurred in proportion to the time required for each product. (c) Comment on a management suggestion that the production and sale of one of the products should not proceed in the period ending 31st March. analysed as relevant.

Management wish to achieve an overall net profit margin of 15% on sales in the period ending 31 March in order to meet return on capital targets.W. Required: Calculate amended unit costs for each product where activity based costing is used and company fixed costs are apportioned as detailed above. Required:Explain how target costing may be used in achieving the required return and suggest specific areas of investigation. Comment on the relevance of the amended unit costs in evaluating the management suggestion that one of the products be discontinued in the period ending 31March.An investigation into the effect of the cost drivers on costs has indicated that the proportions in which the total product specific conversion costs are attributable to VG4U and VG2 are as follows: VG4U VG Temperature (moulding) 2 1 Material consistency (trimming) 2 5 Time (packing) 3 2 Packing (complexity) 1 3 (iv) Company fixed costs is apportioned to products at an overall average rate per product unit based on the estimated figures.C.C. -------------------------------------------------------------------------------------------------------------------- (iii) By:- Sanjay Aggarwal F..A. I. .A.

Sign up to vote on this title
UsefulNot useful