Deck 14: Management Accounting in a Changing Environment

Question 1

Productivity Measure With A Single Input and Output
An tax accountant is examining his productivity.In 1996 he did 300 tax returns in 1400 hours.In 1997 he did 250 tax returns in 1200 hours.
What was his percentage increase in productivity from 1996 to 1997?

Answer 1

Solution to Productivity Measure With a Single Input and Output
(5 minutes)
Assuming that tax returns per hour is the measure of productivity,the tax accountant has decreased productivity from 300/1,400 or .2143 tax returns per hour to 250/1,200 or .2083 tax returns per hour.The percentage change is (.2143 - .2083)/.2143 or -2.8 percent.

Question 2

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.
Should the management incur the additional inspection costs?

Answer 2

Solution to An Inspection Decision With Quality Costs (5 minutes)
The manufacturing costs before the final inspection are irrelevant because they are sunk costs at the time of inspection.For each 100 units inspected,two defective units (from 3 percent to 1 percent)will be found that would have been delivered to customers.Each of those defective units would have cost the company $40 if delivered.Therefore,the total cost of inspecting 100 units is (100 units)($1/unit)or $100 and the cost of sending two more defective units is (2 defective units)($40/defective unit)or $80.In this case it is cheaper not to inspect,assuming that the costs have all been measured accurately.

Question 3

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.
As the controller,how can you defend the accounting activities performed by your department?

Answer 3

Solution to JIT and the Role of Accounting (10 minutes)
Accounting does not directly add value to the product or service purchased by the customer.Indirectly,however,the accounting function can reduce the cost of operations through better planning and control decisions.These reduced costs can be passed on to customers in the form of lower prices for products and services.
Another way to view the question is to recognize that accounting creates value by identifying non-value-added activities that can be eliminated.

Question 4

Accounting for JIT
Vail operates a JIT plant assembling ceiling fans.The Sunset Model ceiling fam 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?

Question 5

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.
How should the company measure stock-out costs and what can be done to minimize stock-out costs?

Question 6

Productivity Measures With Multiple Inputs and Outputs
A farmer grows two crops:lettuce and beans.The farmer uses three inputs:labor,seed,and fertilizer.The past prices and the quantities of each are given in the following tables: Required:
a.Calculate productivity measures for last year and this year using past prices.
b.Calculate the percentage change in productivity.