Chapter 16

Both systems require accumulating data about four basic kinds of costs

1) raw materials, 2) direct labor, 3) machinery and equipment, and 4) manufacturing overhead.

Companies implement ___ to automate the production process.

CIM

The final step in the production cycle is ___ ___

Cost accounting

CPAs have now added and supplemented the traditional financial statements with reports based on ___ ___. One suggested change involves assigning costs to product lines instead of departments

Lean accounting

These costs are related in the diversity of the company's product line

Product-related overhead

Three significant differences between ABC and traditional approaches to product costing:

ABC systems attempt to directly trace a larger proportion of overhead costs to products. ABC systems use a greater number of cost pools to accumulate indirect costs (manufacturing overhead). ABC systems attempt to rationalize the allocation of overhead to products by identifying cost drivers

Is an event, task, or unit of work with a specified purpose such as designing products, setting up machines, operating machines, and distributing products

Activity

What are controls for inappropriate allocation of overhead costs?

Activity based costing.

A costing system by identifying individual activities as the fundamental cost object

Activity-based costing

Both MRP-II and lean manufacturing systems plan production in ____

Advance

Company-wide overhead apply to ___ product

All

Overinvesting in fixed assets can create excess costs and underinvestment can impair productivity. Both problems ___ profitability

Reduce

Ex. of batch related overhead

Setup costs, inspections, and materials handling.

What is an example of a cost driver?

The number of purchase orders processed is one cost driver of purchasing department costs

A Measure of Production Effectiveness

Throughput

In addition to this change, accountants should also develop ___ measures that are designed to focus on issues important to production cycle managers

New

The ultimate objective of quality control is to "get it right the ___ time."

First

The third term in the formula represents the percentage of good units produced

Yield

What is a threat of product design?

Poor Product Design

RFP

Request for Proposal

A document called a ___ ___ ___, which specifies the desired properties of the asset, is sent to each vendor

Request for proposal

What are examples of manufacturing overhead costs?

Factory costs of water, power, and other utilities; miscellaneous supplies; rent, insurance, and property taxes

A second function of a well-designed AIS is to provide adequate controls to meet the following production cycle objectives: All production activities and fixed asset acquisitions are properly ____. Work-in-process inventories and fixed assets are ____. All valid, authorized production cycle transactions are ____. All production cycle transactions are recorded _____. Accurate records are maintained and _____ from loss. Production cycle activities are performed ____ and ___

Authorized Safeguarded Recorded Accurately Protected Efficiently; effectively

What are benefits of ABC systems?

BC systems cost more to run than traditional cost systems because they require the collection of more production-related data and in greater detail. They are also more complex. More accurate cost data results in better product mix and pricing decisions, and more detailed cost data to improve management's ability to control and manage total costs. Better decisions. Traditional cost systems tend to apply too much overhead to some products and too little to others. This leads to two types of problems: Companies may accept sales contracts for some products at prices below their true cost of production. Sales increase, but profits decline. Companies may overprice other products. ABC systems avoid these problems. ABC also uses data to improve product design. Finally, ABC data improve managerial decision making by providing information about the costs associated with specific activities, instead of classifying those costs by financial statement category, which aids in managerial analysis by focusing attention on key processes. The ABC analysis shows which activities (training, testing, and maintenance and system analysis) are running over budget and which are not. Improved cost management. Another advantage of ABC is that it clearly measures the results of managerial actions on overall profitability. ABC systems measure both the amount spent to acquire resources and the consumption of those resources

What are controls for disruption of operations?

Backup power sources and uninterruptible power supply devices are required to ensure that critical equipment and machinery are not damaged during a power loss. This will ensure that the production process can continue on schedule. Not only do companies need to have a disaster plan, but companies need to check on their supplier's plan and come up with alternate sources for critical components.

ABC systems distinguish three separate categories of overhead:

Batch-related overhead Product-related overhead Company-wide overhead

What are controls for inaccurate cost data?

Best controlled with using RFID technology, bar code scanners, badge readers, and other devices

Specifies the part number, description, and quantity of each component used in a finished product.

Bill of materials

The product design activity creates two main documents:

Bill of materials An operations list

Three major functions of the AIS in the production cycle:

Capturing and processing data about business activities. Storing and organizing the data to support decision making. Providing controls to ensure the reliability of data and the safeguarding of organizational resources.

This category includes such costs as rent or property taxes

Company-wide overhead

CAD

Computer Aided Design

CIM

Computer Integrated Manufacturing

Software to design new products

Computer-aided design

Product life-cycle management (PLM) software consists of three key components:

Computer-aided design Digital manufacturing software Product data management software

Using various forms of IT in the production process, such as robots and computer-controlled machinery, is referred to as ____ __ ___

Computer-integrated manufacturing

Some companies have found that the most important management decision involves switching from the traditional "management by exception" philosophy to a "____ ____" viewpoint

Continuous improvement

Anything that has a cause and effect relationship on costs

Cost driver

Formula of cost of activity capability

Cost of activity capability = Cost of activity used + Cost of unused capacity.

Accountants should participate in product design because 65 percent to 80 percent of product ___ are determined at the product design stage

Costs

Poor product design drives up _____ in several ways to include using too many unique components and ___ designed products

Costs Poorly

Misleading reports can lead to ____ decisions

Erroneous

Result when defective products are sold to customers. They include such costs as product liability claims, warranty and repair expenses, loss of customer satisfaction, and damage to the company's reputation

External failure cost

What are threats for cost accounting?

Inaccurate cost data Inappropriate allocation of overhead costs Misleading reports

Associated with testing to ensure that products meet quality standards

Inspection cost

Associated with reworking, or scrapping, products identified as being defective prior to sale

Internal failure cost

Specifies the sequence of steps to follow in making the product, which equipment to use, and how long each step should take.

Operations list

What are controls for misleading reports?

Performance metrics

Associated with changes to production processes designed to reduce the product defect rate

Prevention cost

Quality control costs can be divided into four areas

Prevention costs Inspection costs Internal failure cost External failure cost

The first term in the formula shows the maximum number of units that can be produced using current technology

Productive capacity

The second term in the formula indicates the percentage of total production time used to manufacture the product.

Productive processing time

Ex. of product-related overhead

Research and development, expediting, shipping and

What are the threats for production operations?

Theft of inventories and fixed assets Poor performance Suboptimal investment in fixed assets Loss of inventory or fixed assets due to fire or other disasters Disruption of operations

Represents the number of good units produced in a given period of time

Throughput

What is the throughput formula?

Throughput = (Total units produced/Processing time) × (Processing time/Total time) × (Good units/Total units)

The MPS is used to develop a detailed ____ that specifies daily production and to determine if raw materials need to be purchased. To do this, it is necessary to "explode" the ___ __ ___ to meet the production goals as listed in the MPS

Timetable Bill of materials

Software that simulates how those products will be manufactured.

Digital manufacturing

MPS

Master production schedule

Specifies how much of each product is to be produced during the planning period and when that production should occur

Master production schedule

Authorizes the removal of the necessary quantity of raw materials from the storeroom to the factory location where they will be used.

Materials requisition

Loss or alteration of production data hinders the ____ of inventory and fixed assets and makes it difficult to ensure that ___ activities are being performed efficiently and effectively

Monitoring Manufacturing

What are controls for over-or underproduction?

More accurate production planning can prevent over- and underproduction. Improvement requires accurate and current sales forecasts from the revenue cycle systems, and data about inventory stocks from the expenditure cycle. Proper approval and authorization of production orders is another control to prevent overproduction of specific items

Identify the parts being transferred, the location to which they are transferred, and the time of transfer

Move tickets

Subsequent transfers of raw materials throughout the factory are documented on ____ ___

Move tickets

____ ____ can be reduced by increasing the number of common components used for a line of related products

Production costs

A recurring set of business activities and related information processing operations associated with the manufacture of products

Production cycle

Authorizes the manufacture of a specified quantity of a particular product

Production order

What are controls for suboptimal investment in fixed assets?

Proper authorization of fixed-asset transactions is important. Holding managers accountable for their department's return on the fixed assets provides additional incentive to control such expenditures. Due to the size of fixed-asset purchases, companies should invite several competing suppliers to provide bids

What are the three principal objectives of the cost accounting system?

Provide information for planning, controlling, and evaluating the performance of production operations. Provide accurate cost data about products for use in pricing and product mix decisions. Collect and process the information used to calculate the inventory and cost of goods sold values that appear in the company's financial statements.

Lean manufacturing is often referred to as ___ ____, because goods are produced in response to customer demand

Pull manufacturing

MRP-II systems may develop production plans for up to ___ months in advance

12

A company's ___ plays a vital role in the production cycle

AIS

Accountants are not required to be experts on every facet of CIM, but they must understand how it affects the ___

AIS

The accountant must ensure that the ___ collects and reports costs in a manner ____ with the production planning techniques of the company

AIS Consistent

Accountants can _____ value if they not only design the AIS to measure and collect the relevant cost ____, but also, if they help the design team to use that data proactively to improve ____

Add Data Profitability

Three major functions of the AIS in the production cycle: Capturing and processing ____ about business activities. ____ and organizing the data to support decision making. Providing ____ to ensure the reliability of data and the safeguarding of organizational resources.

Data Storing Controls

When production is initiated, the issuance of materials requisition triggers a ____ to work-in-process for the raw materials sent to production, and a ___ when raw materials are not used and returned to inventory.

Debit Credit

Inaccurate cost data diminishes the ____ of production scheduling and ___ management's ability to monitor and control manufacturing operations

Effectiveness Undermines

Lean manufacturing emphasizes working in teams and seeks to maximize the ____ and ___ of all teams involved in making a particular product

Efficiency Synergy

Inappropriate allocation of overhead costs can lead to ____ decisions

Erroneous

Managers should be assigned responsibility and accountability for ___ assets under their control

Fixed

Inefficiencies in production operations result in ___ expenses

Increased

What are controls for loss of inventory or fixed assets due to fire or other disasters?

Insurance can mitigate this loss

What are controls for loss, alteration, or unauthorized disclosure of data?

Inventory and work-in-process records must be protected from both intentional and accidental losses or damages. Regular back-up of all data files is important. Access controls are also necessary to protect production data because of the potential losses of production trade secrets. Unauthorized access also increases the risk of damage to important data files. Passwords and user IDs can limit access to sensitive files. It is important to enforce proper access controls and segregation of duties which requires the controller or CFO to review and suggest appropriate configuration of user rights in integrated AIS packages and ERP systems. Access and processing integrity controls are also needed to ensure the confidentiality and accuracy of production cycle data transmissions among different factories

Maintaining physical custody of the raw materials and finished goods inventories is the responsibility of the ___ ____ department. Department of ___ supervisors have primary responsibility for work-in-process inventories.

Inventory stores Factory

Most companies use either ___ ___or ___ __ to assign production costs.

Job order Process costing

Assigns costs to specific production batches, or jobs, and is used when the product or service being sold consists of discretely identifiable items.

Job-order costing

Extends the principles of just-in-time systems to the entire production process.

Lean manufacturing

What is a general threat in the production cycle?

Loss, Alteration, or Unauthorized Disclosure of Data

Two common methods of production planning are

Management resource planning Lean manufacturiing

The third step in the production cycle is the actual ___ of products

Manufacture

The high level of automation in production cycle activities means that disasters that disrupt the functioning of information systems can also disrupt ____ activities

Manufacturing

An extension of materials requirements planning that seeks to balance existing production capacity and raw material needs to meet forecasted sales demands

Manufacturing Resource Planning

MRP-II

Manufacturing Resource Planning

What are controls for poor performance?

Manufacturing activities must be closely monitored and prompt action taken to correct any deviations from standards

Accountants can play a key role in controlling overhead costs by carefully assessing how changes in product mix affect total ___ ___

Manufacturing overhead

Manufacturing costs that cannot be directly related to the production of a specific product is referred to as ___ ___

Manufacturing overhead

In order to minimize inventory carrying costs, the AIS must maintain accurate perpetual inventory records. This requires integrating information about customer ____ (from the revenue cycle) with information about purchases from ____ (from the expenditure cycle), along with information about ___ available (from the HR/payroll cycle)

Orders Suppliers Labor

What is a threat of planning and scheduling?

Over- or Underproduction

_____ in fixed assets can create excess costs and ____ can impair productivity

Overinvesting Underinvestment

Can result in a supply of goods in excess of short-run demands, thereby creating potential cash flow problems. There is also a risk of carrying inventory items that become obsolete

Overproduction

Two related threats in the planning and scheduling process are

Overproduction Underproduction

In order to minimize inventory carrying costs, the AIS must maintain accurate ____ ___ records.

Perpetual inventory

The second setup in the production is...

Planning and scheduling

Assigns costs to each process, or work center, in the production cycle, then calculates the average cost for all units produced.

Process costing

Accurate and timely cost accounting information is essential input to decisions about the following: ____ mix Product ____. Resource ____ and planning ___ management

Product Pricing Allocation Cost

PLM

Product Lifecycle Management

Software that stores all the data associated with products.

Product data management

The first step in the production cycle is ___ ___

Product design

What are the four basic activities in the production cycle?

Product design Planning and scheduling Production operations Cost accounting

What is a control for poor product design?

Product design can be improved with accurate data about the relationship between components and finished goods.

Accurate and timely cost accounting information is essential input to decisions about the following for the production cycle information system:

Product mix (what to produce). Product pricing. Resource allocation and planning (e.g., whether to make or buy a product, relative profitability of different products). Cost management (planning and controlling manufacturing costs, evaluating performance)

MRP-II systems are often referred to as ____ ___, because goods are produced in expectation of customer demand

Push manufacturing

Wherever feasible, use of ____ tags or bar codes can further improve data entry accuracy

RFID

___ ___ improve the efficiency of tracking materials usage.

RFID tags

RFID

Radio Frequency Identification

More recently, ___ ___ ___ tags further improve efficiency by eliminating the need for any human intervention in the scanning process. This makes RFID scanners up to ___ times faster than bar-code scanners

Radio frequency identification 40

Every firm requires cost accounting data about the following four facets of its production operations:

Raw materials used Labor hours expended Machine operations performed Other manufacturing overhead costs incurred

The objective of the product design is to design a product that meets customer _____ in terms of ____, durability, and functionality while ____ production costs

Requirement Quality Minimizing

Surveys estimate that as much as 10%-20% of handling materials in the warehouse is spent on looking for the ____ product. RFID technology can eliminate this ___. RFID tags have a scanner that broadcasts a signal to locate the ___ product

Right Cost Desired

Most lean manufacturing systems develop ___ ___ production plans

Short run

Lean manufacturing systems use much ___ planning horizons

Shorter

____ software is constantly improving the efficiency and effectiveness of product design

Simulation

Begins with careful measurement and analysis of current processes in order to find ways to improve them

Six Sigma

One popular approach to improving manufacturing performance, called ___ ___

Six Sigma

Bar-coding improved the ___ and accuracy of recording information about material movements and eliminating the need to ___ enter data.

Speed Manually

What are controls for theft of inventories and fixed assets?

To reduce the risk of inventory loss, physical access to inventories should be restricted and all internal movements of inventory should be documented. Proper segregation of duties is important to safeguard inventory. Internal controls are also needed to safeguard fixed assets. Finally, inventories and fixed assets are also subject to loss due to fire or other disasters. Therefore, adequate insurance coverage should be maintained to cover such losses and provide for the replacement costs of these assets.

Can result in lost sales and dissatisfied customers

Underproduction

The wired connections are now being replaced with ____ technology. This enables the use of 3-D simulation software to evaluate the effects of modifying shop-floor layout and workflow to ___ and ___ implement beneficial changes.

Wireless Easily; quickly

Data for machinery and equipment used at a workstation and the duration of such use is collected by ____ the factory so that each piece of equipment is linked to the ___.

Wiring Computer