Exam 14: Management Accounting in a Changing Environment

Internal accounting systems, including performance measures, affect behavior. It is often suggested that people pay attention to the dimensions of their work performance that are measured and rewarded. When, if ever, should these systems be revised?

Kosmic Kan produces Kaos, a leading edge computer game. It is implementing a balanced scorecard to assess performance across multiple dimensions. Which is not an appropriate measure?

Which is not true of Total Quality Management (TQM)?

Typical measures of quality include:

Design a Balanced Scorecard New Town Roasters (NTR) owns and operates a chain of 12 coffee shops around town. NTR's strategy is to provide the highest-quality coffee and baked goods in a warm, friendly environment. Each NTR provides its customers Internet access and current newspapers. Some shops are open 24 hours a day, especially those located around college campuses. Each shop manager is responsible for deciding the hours that the store is open, the selection of baked goods to stock, and the number of Internet terminals to provide in the store. Required: Design a balanced scorecard to evaluate and reward the manager of each shop.

Typical quality improvements include:

The balanced scorecard as a measure of corporate performance has been both criticized and lauded. Which is true?

JIT and Stock-Out Costs James Industries is considering a shift to JIT. The president feels that considerable costs can be saved by reducing inventory. The marketing manager is worried, however. She recognizes that the inventory holding costs such as storage and the opportunity cost of cash used to hold inventory are high and will be reduced if the company changes to JIT. But she is worried that the president has forgotten about stock-out costs. Stock-out costs occur when customers want to purchase an item, but the item is not immediately available so the customer goes elsewhere to make the purchase. Required: How should the company measure stock-out costs and what can be done to minimize stock-out costs?

An Inspection Decision with Quality Costs A company is considering additional final inspection costs of $1 per unit before delivery to customers. The additional inspection should reduce the defective rate from 3 percent to 1 percent. If a defective unit is found, it is scrapped at no additional cost. The manufacturing costs before the final inspection are $200 per unit. The management believes that the external failure costs are $40 per defective unit. Required: Should the management incur the additional inspection costs?

JIT and the Role of Accounting The president of Kelly Windows is an avid believer in JIT. Kelly Windows manufactures bay windows. The president wants no inventory or work-in-process on the floor at the end of each day. Windows are only manufactured after being ordered and throughput time is quick enough to complete most orders during the day of the order. The president is also trying to eliminate all non-value added activities. She considers accounting to be non-value added and would like to reduce accounting activities sharply if not completely. Required: As the controller, how can you defend the accounting activities performed by your department?

Accounting for JIT Vail operates a JIT plant assembling ceiling fans. The Sunset Model ceiling fan has a standard material cost of $28.40, a standard direct labor cost of $14.80, and overhead (fixed and variable) of $16.10. On Monday, a batch of 100 Sunset fans is completed. All of the materials for the 100 fans were on hand prior to Monday and had been previously recorded in the raw and in-process inventory account. Required: In analyzing the financial statements of a firm using JIT and another firm in the same industry not using JIT, what differences would you expect to observe?

Which is false of just-in-time (JIT) manufacturing systems?

Zagart's Zambonis manufactures Zambonis (ice rink machines). Its cost of quality data appears below. Total manufacturing cost this year was $4.6 million. text thou Engineering tests at supplier's factory 18 Field testing new product 12 Inspection costs 42 Process re-engineering 50 Product redesign 42 Rework 45 Sales returns (at cost) 105 Scrap 22 Training employees on new system 6 Warranty repairs 60 Waste 14 Total Which is true?

$\text { Cost of quality report }$ Prevention \ thou Engineering tests at supplier's factory \ 18 Process re-engineering 50 Product redesign 42 Training employees on new system In evaluating Zagart's Zambonis cost of quality report, which is false?