THE PRODUCTION CYCLE
THE PRODUCTION CYCLE
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS SUGGESTED ANSWERS TO DISCUSSION QUESTIONS 14.1.
14.1. When When activity!activity!a"e# a"e# c$"t %c$"t %e&$%t" e&$%t" in#icate in#icate that that e'ce"" e'ce"" ca&acitca&acity e'iy e'i"t"( )an"t"( )ana*e)enta*e)ent "h$+,# eithe% -in# a,te%native %even+eenhancin* +"e" -$% that ca&acity $% e,i)inate "h$+,# eithe% -in# a,te%native %even+eenhancin* +"e" -$% that ca&acity $% e,i)inate it th%$
it th%$+*h #$+*h #$n"i/in*. n"i/in*. What What -act$%" in-,+ence -act$%" in-,+ence )ana*e)ent0" #eci"i$n )ana*e)ent0" #eci"i$n What What a%ea%e the ,i2e,y !ehavi$%a, "i#e e--ect" $-
the ,i2e,y !ehavi$%a, "i#e e--ect" $- each ch$ice each ch$ice What i)&,icati$n" #$ th$"e "i#eWhat i)&,icati$n" #$ th$"e "i#e e--ect" have -$% the ,$n*%+n +"e-+,ne"" $- activity!a"e# c$"t "y"te)"
e--ect" have -$% the ,$n*%+n +"e-+,ne"" $- activity!a"e# c$"t "y"te)"
It will often be easier to identify opportunities to downsize and
It will often be easier to identify opportunities to downsize and eliminate jobs than to findeliminate jobs than to find creative value-adding activities for
creative value-adding activities for excess capacity. excess capacity. Thus, management may be moreThus, management may be more likely to eliminate excess
likely to eliminate excess capacity than to redirect it capacity than to redirect it to new tasks. to new tasks. This can have seriousThis can have serious negative effects on both empl
negative effects on both employee morale and the long-run survival oyee morale and the long-run survival of the firm. of the firm. henhen employees are let go, their
employees are let go, their knowledge and customer relationships go knowledge and customer relationships go with them. with them. !ome!ome consultants argue that such soft knowledge is a co
consultants argue that such soft knowledge is a company"s mmpany"s most valuable asset and,ost valuable asset and, therefore, that downsizi
therefore, that downsizing is likely ng is likely to have negative long-run to have negative long-run conse#uences. conse#uences. IfIf
management uses $%& systems to justify downsizing, there is likely to be a backlash management uses $%& systems to justify downsizing, there is likely to be a backlash against and distrust of such systems by many managers.
against and distrust of such systems by many managers. Instead, managers should seek to find new
Instead, managers should seek to find new opportunities to productively make use ofopportunities to productively make use of excess capacity.
excess capacity. This can involve creating teams to look for ways to improve processesThis can involve creating teams to look for ways to improve processes and cut costs.
and cut costs. It is also usIt is also useful to build-in resources eful to build-in resources for ongoing maintenance.for ongoing maintenance. 'inally, it is critical to focus on (practical)
'inally, it is critical to focus on (practical) capacity rather than capacity rather than (theoretical) capacity,(theoretical) capacity, recognizing that neither humans nor machines can function productively *++ of the recognizing that neither humans nor machines can function productively *++ of the time there needs to be (slack) built in to accommodate breaks, maintenance, and time there needs to be (slack) built in to accommodate breaks, maintenance, and unexpected interruptions.
14.3.
14.3. Why Why "h$+,# "h$+,# acc$+ntaacc$+ntant" nt" &a%tici&a%tici&ate &ate in in &%$#&%$#+ct +ct #e"i*n #e"i*n What What in"i*ht" in"i*ht" a!$+t a!$+t c$"t"c$"t" can acc$+ntant" c$nt%i!+te that #i--e% -%$) the &e%"&ective" $- &+%cha"in*
can acc$+ntant" c$nt%i!+te that #i--e% -%$) the &e%"&ective" $- &+%cha"in* )ana*e%" an# en*inee%"
)ana*e%" an# en*inee%"
roduct design is concerned with designing
roduct design is concerned with designing a product that meets customer re#uirementsa product that meets customer re#uirements in terms of #uality, durability, and functionality while also minimizing costs.
in terms of #uality, durability, and functionality while also minimizing costs. $ccountants can add value to the production team by using their expertise to help $ccountants can add value to the production team by using their expertise to help properly track and minimize costs.
properly track and minimize costs. $ccountants can collect past data and use it to project$ccountants can collect past data and use it to project potential warranty and repair costs.
potential warranty and repair costs. They can also help analyze components used toThey can also help analyze components used to identify those used in mult
identify those used in multiple products and those that iple products and those that are uni#ue. are uni#ue. They can then provideThey can then provide cost data about the uni#ue products and ask engineering whether those parts can be
cost data about the uni#ue products and ask engineering whether those parts can be replaced with components used on other
replaced with components used on other products. products. /oing so will r/oing so will reduce a number ofeduce a number of indirect product costs, especially those related to purchasing and
indirect product costs, especially those related to purchasing and carrying inventory.carrying inventory. 0ost important, accountants provide a different perspective and may notice things or 0ost important, accountants provide a different perspective and may notice things or #uestion assumptions that engineers and product designers take
#uestion assumptions that engineers and product designers take for granted.for granted.
14..
14.. S$)e S$)e c$)&anie" c$)&anie" have have e,i)inate# e,i)inate# the cthe c$,,ecti$n $,,ecti$n an# an# %e&$%%e&$%tin* tin* $- #e$- #etai,e# tai,e# ana,y"e" ana,y"e" $n$n #i%ect ,a!$%
#i%ect ,a!$% c$"t" !%$2en c$"t" !%$2en #$n !y #$n !y va%i$+" activitie". va%i$+" activitie". In"tea#( -i%"t,ine "+&e%vi"$%"In"tea#( -i%"t,ine "+&e%vi"$%" a%e %e"&$n"i!,e -$% c$nt%$,,in*
a%e %e"&$n"i!,e -$% c$nt%$,,in* the t$ta, c$"t" $- #i%ect ,a!$%the t$ta, c$"t" $- #i%ect ,a!$%. . The 5+"ti-icati$n -$%The 5+"ti-icati$n -$% thi" a%*+)ent i" that ,a!$% c$"t" %e&%e"ent $n,y a ")a,, -%acti$n the t$ta, c$"t" thi" a%*+)ent i" that ,a!$% c$"t" %e&%e"ent $n,y a ")a,, -%acti$n the t$ta, c$"t" $-&%$#+cin* a &%$#+ct an# a%e n$t $%th the ti)e an# e--$%t t$ t%ace t$ in#ivi#+a, &%$#+cin* a &%$#+ct an# a%e n$t $%th the ti)e an# e--$%t t$ t%ace t$ in#ivi#+a, activitie".
activitie". D$ y$+ D$ y$+ a*%ee a*%ee $% $% #i"a*%ee #i"a*%ee ith thi" ith thi" a%*+)ent a%*+)ent WhyWhy
This #uestion should create s
This #uestion should create some debate. ome debate. The important issThe important issues to keep in mind are1ues to keep in mind are1
•
• 2ow will management use detailed labor data32ow will management use detailed labor data3 •
• hat actions can be taken based on such data3hat actions can be taken based on such data3 •
• 2ow do the potential benefits of collecting and reporting detailed labor costs compare2ow do the potential benefits of collecting and reporting detailed labor costs compare
to the costs of processing that data3 to the costs of processing that data3
The answers to these #uestions will determine whether the cost o
The answers to these #uestions will determine whether the cost of collecting the data isf collecting the data is less than its value.
14.3.
14.3. Why Why "h$+,# "h$+,# acc$+ntaacc$+ntant" nt" &a%tici&a%tici&ate &ate in in &%$#&%$#+ct +ct #e"i*n #e"i*n What What in"i*ht" in"i*ht" a!$+t a!$+t c$"t"c$"t" can acc$+ntant" c$nt%i!+te that #i--e% -%$) the &e%"&ective" $- &+%cha"in*
can acc$+ntant" c$nt%i!+te that #i--e% -%$) the &e%"&ective" $- &+%cha"in* )ana*e%" an# en*inee%"
)ana*e%" an# en*inee%"
roduct design is concerned with designing
roduct design is concerned with designing a product that meets customer re#uirementsa product that meets customer re#uirements in terms of #uality, durability, and functionality while also minimizing costs.
in terms of #uality, durability, and functionality while also minimizing costs. $ccountants can add value to the production team by using their expertise to help $ccountants can add value to the production team by using their expertise to help properly track and minimize costs.
properly track and minimize costs. $ccountants can collect past data and use it to project$ccountants can collect past data and use it to project potential warranty and repair costs.
potential warranty and repair costs. They can also help analyze components used toThey can also help analyze components used to identify those used in mult
identify those used in multiple products and those that iple products and those that are uni#ue. are uni#ue. They can then provideThey can then provide cost data about the uni#ue products and ask engineering whether those parts can be
cost data about the uni#ue products and ask engineering whether those parts can be replaced with components used on other
replaced with components used on other products. products. /oing so will r/oing so will reduce a number ofeduce a number of indirect product costs, especially those related to purchasing and
indirect product costs, especially those related to purchasing and carrying inventory.carrying inventory. 0ost important, accountants provide a different perspective and may notice things or 0ost important, accountants provide a different perspective and may notice things or #uestion assumptions that engineers and product designers take
#uestion assumptions that engineers and product designers take for granted.for granted.
14..
14.. S$)e S$)e c$)&anie" c$)&anie" have have e,i)inate# e,i)inate# the cthe c$,,ecti$n $,,ecti$n an# an# %e&$%%e&$%tin* tin* $- #e$- #etai,e# tai,e# ana,y"e" ana,y"e" $n$n #i%ect ,a!$%
#i%ect ,a!$% c$"t" !%$2en c$"t" !%$2en #$n !y #$n !y va%i$+" activitie". va%i$+" activitie". In"tea#( -i%"t,ine "+&e%vi"$%"In"tea#( -i%"t,ine "+&e%vi"$%" a%e %e"&$n"i!,e -$% c$nt%$,,in*
a%e %e"&$n"i!,e -$% c$nt%$,,in* the t$ta, c$"t" $- #i%ect ,a!$%the t$ta, c$"t" $- #i%ect ,a!$%. . The 5+"ti-icati$n -$%The 5+"ti-icati$n -$% thi" a%*+)ent i" that ,a!$% c$"t" %e&%e"ent $n,y a ")a,, -%acti$n the t$ta, c$"t" thi" a%*+)ent i" that ,a!$% c$"t" %e&%e"ent $n,y a ")a,, -%acti$n the t$ta, c$"t" $-&%$#+cin* a &%$#+ct an# a%e n$t $%th the ti)e an# e--$%t t$ t%ace t$ in#ivi#+a, &%$#+cin* a &%$#+ct an# a%e n$t $%th the ti)e an# e--$%t t$ t%ace t$ in#ivi#+a, activitie".
activitie". D$ y$+ D$ y$+ a*%ee a*%ee $% $% #i"a*%ee #i"a*%ee ith thi" ith thi" a%*+)ent a%*+)ent WhyWhy
This #uestion should create s
This #uestion should create some debate. ome debate. The important issThe important issues to keep in mind are1ues to keep in mind are1
•
• 2ow will management use detailed labor data32ow will management use detailed labor data3 •
• hat actions can be taken based on such data3hat actions can be taken based on such data3 •
• 2ow do the potential benefits of collecting and reporting detailed labor costs compare2ow do the potential benefits of collecting and reporting detailed labor costs compare
to the costs of processing that data3 to the costs of processing that data3
The answers to these #uestions will determine whether the cost o
The answers to these #uestions will determine whether the cost of collecting the data isf collecting the data is less than its value.
less than its value.
14- 14-
© 2009 Pearson E
14.4.
14.4. TyTy&ica,,y&ica,,y( 6cD$( 6cD$na,#0" na,#0" &%$#+&%$#+ce" )en+ ce" )en+ ite)" in ite)" in a#vance a#vance $- c+"t$$- c+"t$)e% $%#)e% $%#e%" !a"ee%" !a"e# $n# $n antici&ate# #e)an#.
antici&ate# #e)an#. In c$nt%a"t( 7+%*e% 8in* In c$nt%a"t( 7+%*e% 8in* &%$#+ce" )en+ ite)" &%$#+ce" )en+ ite)" $n,y in$n,y in %e"&$n"e t$ c+"t$)e%
%e"&$n"e t$ c+"t$)e% $%#e%". $%#e%". Which "y"te) 96RPII $% Which "y"te) 96RPII $% ,ean )an+-act+%in*: #$e",ean )an+-act+%in*: #$e" each c$)&any +"e
each c$)&any +"e What a%e What a%e the %e,ative a#vanta*e" an# the %e,ative a#vanta*e" an# #i"a#vanta*e" $- each#i"a#vanta*e" $- each "y"te)
"y"te)
0c/onald"s uses 04-II5 %urger 6ing uses 7IT. 0c/onald"s uses 04-II5 %urger 6ing uses 7IT.
$n advantage of 04-II is that customer orders can be filled with less
$n advantage of 04-II is that customer orders can be filled with less delay. delay. $$ disadvantage is the potential for over-producing items that are not in
disadvantage is the potential for over-producing items that are not in high demand 8in thehigh demand 8in the case of 0c/onald"s, this could be either cold or stale food9.
case of 0c/onald"s, this could be either cold or stale food9. $n advantage of 7IT is that it facilitates
$n advantage of 7IT is that it facilitates customization. customization. $ $ disadvantage is delay in fillingdisadvantage is delay in filling customer orders 8i.e., longer wait times9 if there is an unanticipated large increase in customer orders 8i.e., longer wait times9 if there is an unanticipated large increase in demand.
demand.
The two systems also differ in terms of implications for the supply chain1 because The two systems also differ in terms of implications for the supply chain1 because 04-II systems rely on maintaining a larger supply of raw materials than 7IT systems, they are II systems rely on maintaining a larger supply of raw materials than 7IT systems, they are less vulnerable to short-term interruptions in the supply chain due to
less vulnerable to short-term interruptions in the supply chain due to strikes or naturalstrikes or natural disasters that may disrupt deliveries.
disasters that may disrupt deliveries.
14.;
14.; S$)e S$)e c$)&c$)&anieanie" hav" have "ite "itcheche# -%$# -%$) a <)an) a <)ana*ea*e)ent !)ent !y e'cy e'ce&tie&ti$n= &$n= &hi,$hi,$"$&"$&hy t$ ahy t$ a <c$ntin+$+" i)&%$ve)ent= vie&$int.
<c$ntin+$+" i)&%$ve)ent= vie&$int. The chan*e The chan*e i" "+!t,e( i" "+!t,e( !+t "i*ni-icant.!+t "i*ni-icant. C$ntin+$+" i)&%$ve)ent -$c+"e" $n c$)&a%in* act+a, &e%-$%)ance t$ the i#ea, C$ntin+$+" i)&%$ve)ent -$c+"e" $n c$)&a%in* act+a, &e%-$%)ance t$ the i#ea, 9i.e.( &e%-ecti$n:.
9i.e.( &e%-ecti$n:. C$n"e>+ent,y( a,, va%iance" C$n"e>+ent,y( a,, va%iance" a%e ne*ative 9h$ can a%e ne*ative 9h$ can y$+ #$ !ette%y$+ #$ !ette% than &e%-ect:.
than &e%-ect:. The ,a%*e"t va%iance" in#icate the The ,a%*e"t va%iance" in#icate the a%ea" ith the a%ea" ith the *%eate"t a)$+nt $-*%eate"t a)$+nt $-<a"te(= an#( c$%%e"&$n#in*,y( the *%eate"t $&&$%t+nity -$% i)&%$vin* the !$tt$) <a"te(= an#( c$%%e"&$n#in*,y( the *%eate"t $&&$%t+nity -$% i)&%$vin* the !$tt$) ,ine.
,ine. What a%e What a%e the a#vanta*e" an# #i"a#vanta*e" $- the a#vanta*e" an# #i"a#vanta*e" $- thi" &%acticethi" &%actice
$n advantage of continuous improvement reports is that they combat the tendency for $n advantage of continuous improvement reports is that they combat the tendency for complacency.
complacency.
$ disadvantage is that they can create too much p
$ disadvantage is that they can create too much pressure if expectations for improvementressure if expectations for improvement are unrealistic.
are unrealistic. $ccountants can help avoid thi$ccountants can help avoid this by becoming involved in collecting ands by becoming involved in collecting and analyzing performance data to ensure tha
SUGGESTED ANSWERS TO THE PRO7LE6S
14.1. 6atch the te%)" in the ,e-t c$,+)n ith thei% #e-initi$n" -%$) the %i*ht c$,+)n?
*. :c:: %ill of materials a. $ factor that causes costs to change.
;. :k:: <perations list b. $ measure of the number of good units produced in a period of time.
=. :l:: 0aster roduction !chedule
c. $ list of the raw materials used to create a finished product.
>. :m: ?ean manufacturing d. $ document used to authorize removal of raw materials from inventory.
@. :j:: roduction order e. $ cost-accounting method that assigns costs to products based on specific processes performed. A. :d:: 0aterials re#uisition f. $ cost accounting method that assigns costs to
specific batches or production runs and is used when the product or service consists of uni#uely identifiable items.
B. :i:: 0ove ticket g. $ cost accounting method that assigns costs to each step or work center and then calculates the average cost for all products that passed through that step or work center.
C. :h:: 7ob-time ticket h. $ document that records labor costs associated with manufacturing a product.
D. :f:: 7ob-order costing i. $ document that tracks the transfer of inventory from one work center to another.
*+. :a: &ost driver j. $ document that authorizes the manufacture of a finished good.
**. :b: Throughput k. $ document that lists the steps re#uired to manufacture a finished good.
*;. :o: &omputer-integrated manufacturing
l. $ document that specifies how much of a finished good is to be produced during a specific time period.
m. $ production planning techni#ue that is an extension of the just-in-time inventory control method.
n. $ production planning techni#ue that is an
extension of the 0aterials 4e#uirement lanning inventory control method.
o. $ term used to refer to the use of robots and other IT techni#ues as part of the production process.
14.3 What inte%na, c$nt%$, &%$ce#+%e9": $+,# !e"t &%event $% #etect the -$,,$in* &%$!,e)"
a. A &%$#+cti$n $%#e% a" initiate# -$% a &%$#+ct that a" a,%ea#y $ve%"t$c2e# in the c$)&any0" a%eh$+"e.
%ase the master production schedule on &urrent data on product sales
roduct sales forecasts Euantities on hand
Euantity scheduled or under production 0aintain accurate perpetual inventory records.
!. A &%$#+cti$n e)&,$yee "t$,e ite)" $- $%2in&%$ce"" invent$%y.
• Fnsure good supervision by factory supervisors.
• Implement documentary control over #uantities of in-process inventories and their
movement through the factory 8e.g., move tickets9.
• &ountGrecord #uantities at each workstation and have both parties to any transfer
acknowledge the transaction..
c. The <%+"h$%#e%= ta* $n a &a%tia,,y c$)&,ete# &%$#+cti$n 5$! !eca)e #etache# -%$) the )ate%ia," an# ,$"t( %e"+,tin* in a c$"t,y #e,ay.
Hse rush order tags
2ave production schedules indicate the high priority jobs.
&onfigure the F4 system to prepare status reports of production so that failure to complete portions of the 0! will be detected on a timely basis.
Hse expediters to monitor work on high priority jobs.
#. A &%$#+cti$n e)&,$yee ente%e# a )ate%ia," %e>+i"iti$n -$%) int$ the "y"te) in $%#e% t$ "tea, @ $%th $- &a%t" -%$) the %a )ate%ia," "t$%e%$$).
?imit authority to prepare or authorize materials re#uisitions to production planning personnel and perhaps factory supervisors.
e. A &%$#+cti$n $%2e% ente%in* 5$!ti)e #ata $n an $n,ine te%)ina, )i"ta2en,y ente%e# ( in"tea# $- in the <>+antityc$)&,ete#= -ie,#.
alidate input by comparing the #uantity entered with the #uantity scheduled during the elapsed time.
'lag any amounts that are unreasonably high or low and have the system display a re#uest that the worker reenter the #uantity.
-. A &%$#+cti$n $%2e% ente%in* 5$!ti)e #ata $n an $n,ine te%)ina, )i"ta2en,y &$"te# the c$)&,eti$n $&e%ati$n ;B3 t$ &%$#+cti$n $%#e% ;B in"tea# $-&%$#+cti$n $%#e% ;B.
2ave the system keep track of which order each employee is working on and
o erify that the production order number properly corresponds to the employee
number.
o erify that the operation number entered corresponds to the production order
number entered.
2ave any lack of correspondence cause the system to re#uest reentry of the input data.
*. A &a%t" "t$%e%$$) c,e%2 i""+e# &a%t" in >+antitie" 1 ,$e% than th$"e in#icate# $n "eve%a, )ate%ia," %e>+i"iti$n" an# "t$,e the e'ce"" >+antitie".
The discrepancy should show up in an unfavorable materials usage variance, since the shortage will necessitate re#uesting additional goods. To deter this type of problem1
4e#uire the recipient of inventories from stores to sign a re#uisition for the exact #uantities received
2old the recipient responsible for shortages to provide an incentive to accurately count what is received.
h. A &%$#+cti$n )ana*e% "t$,e "eve%a, e'&en"ive )achine" an# c$ve%e# +& the ,$"" !y "+!)ittin* a -$%) t$ the acc$+ntin* #e&a%t)ent in#icatin* that the )i""in* )achine" e%e $!"$,ete an# "h$+,# !e %itten $-- a" $%th,e"".
?imit authority to write off expensive machines to management
/ocument all transactions involving the ac#uisition or disposal of fixed assets. 4e#uire a dual authorization5 that is, two separate members of management must
authorize the disposal of obsolete machinery.
2ave someone not involved in the transaction review it prior to disposing of the e#uipment.
i. The >+antity$nhan# !a,ance -$% a 2ey c$)&$nent "h$" a ne*ative !a,ance.
Hse sign checks on master file balances after every file update 4econcile recorded amounts with a physical count of inventory /etermine cause of errors and take corrective action to eliminate it.
5. A -act$%y "+&e%vi"$% acce""e# the $&e%ati$n" ,i"t -i,e an# in-,ate# the "tan#a%#" -$% $%2 c$)&,ete# in hi" #e&a%t)ent. C$n"e>+ent,y( -+t+%e &e%-$%)ance %e&$%t" "h$ -av$%a!,e !+#*et va%iance" -$% that #e&a%t)ent.
4estrict update access to operations list to a limited number of authorized supervisors of the engineering and product design teams.
4eview all changes to the operations list on a regular and timely basis
Hse variance analysis to determine the difference between standard and actual usage and investigate any material differences
2. A -act$%y "+&e%vi"$% %$te $-- a %$!$tic a""e)!,y )achine a" !ein* "$,# -$% "a,va*e( !+t act+a,,y "$,# the )achine an# &$c2ete# the &%$cee#".
• ?imit authority to write off machines to management
• /ocument all transactions involving the ac#uisition or disposal of fixed assets. • 4e#uire a dual authorization5 that is, two separate members of management must
authorize the disposal of obsolete machinery.
• 2ave someone not involved in the transaction review it prior to disposing of the
e#uipment.
,. Ove%&%$#+cti$n $- a ",$)$vin* &%$#+ct %e"+,te# in e'ce""ive invent$%y that ha# t$ event+a,,y !e )a%2e# #$n an# "$,# at a ,$"".
• &reate a 0aster roduction !chedule based on information from sales forecasts
14. U"e Ta!,e 141 t$ c%eate a >+e"ti$nnai%e chec2,i"t that can !e +"e# t$ eva,+ate c$nt%$," -$% each $- the !a"ic activitie" in the &%$#+cti$n cyc,e 9&%$#+ct #e"i*n( &,annin* an# "che#+,in*( &%$#+cti$n $&e%ati$n"( an# c$"t acc$+ntin*:.
a. F$% each c$nt%$, i""+e( %ite a Ye"N$ >+e"ti$n "+ch that a <N$= an"e% %e&%e"ent" a c$nt%$, ea2ne"".
$ wide variety of #uestions is possible. %elow is a sample list1
Euestion Jes Ko
*. Is access to production master data 8production orders, inventory, master production schedule, etc.9 restricted3
;. Is the production master data regularly reviewed and all changes investigated3
=. Is production data encrypted while stored in the database3 >. /oes a backup and disaster recovery plan exist3
@. 2ave backup procedures been tested within the past year3 A. $re appropriate data entry edit controls used3
B. Is a perpetual inventory of raw materials components maintained3
C. $re physical counts of raw materials inventory taken regularly and used to adjust the perpetual inventory records3
D. $re competitive bids used when ordering fixed assets3
*+. $re reports prepared showing the number of uni#ue components for each finished product3
**. $re warranty and repair costs tracked for each finished product3 *;. Is a 0aster roduction !chedule 80!9 created and followed3
*=. $re materials re#uisitions used to authorize and document removal of raw materials from inventory3
*>. $re move tickets used to document transfers of raw materials and work-in- process in the factory3
*@. $re the disposals of fixed assets documented3
!. F$% each Ye"N$ >+e"ti$n( %ite a !%ie- e'&,anati$n $- hy a <N$= an"e% %e&%e"ent" a c$nt%$, ea2ne"".
Euestion 4eason a (Ko) answer represents a weakness
* Hnrestricted access to the production master data could result in disclosure of trade secrets or creation of unauthorized production orders.
; 'ailure to investigate all changes to production master data may allow errors to remain undetected that result in over- or under-production of finished goods.
= 'ailure to encrypt production data can result in the unauthorized disclosure of sensitive information.
> If a backup and disaster recovery plan does not exist, the organization may lose important data.
@ If the backup plan is not regularly tested, it may not work.
A ithout proper data entry edit controls, errors may occur in recording
production operations, which may result in inventory valuation errors, over-or under-production, over-or poover-or pricing decisions.
B ithout a perpetual inventory system, shortages and excess inventory is more likely.
C ithout periodic physical counts and any necessary inventory records adjustments, the perpetual inventory records are likely to be incorrect.
D ithout competitive bids, purchases may be at higher than necessary prices. *+ 'ailure to track the number of common and uni#ue components used can
result in poor product design or excessive costs of production and inventory. ** 'ailure to trace warranty and repair costs to specific finished products
precludes correcting poor product designs.
*; ithout a 0aster roduction !chedule, unauthorized production orders could result in over-production of finished goods. There could also be underproduction of finished goods.
*= 'ailure to document transfer of raw materials from inventory stores can lead to theft.
*> Kot documenting the transfer of raw materials and work-in-process can prevent discovery of theft and make it difficult to identify the perpetrator. *@ Kot documenting the disposal of fixed assets can cover up theft and make it
difficult to identify the perpetrator.
*A ?ack of ade#uate insurance exposes the organization to the risk of substantial monetary loss in the event of an insurable incident.
14.4 Y$+ have %ecent,y !een hi%e# a" the c$nt%$,,e% -$% a ")a,, )an+-act+%in* -i%) that )a2e" hi*h#e-initi$n te,evi"i$n". One $- y$+% -i%"t ta"2" i" t$ #eve,$& a %e&$%t )ea"+%in* th%$+*h&+t.
De"c%i!e the #ata %e>+i%e# t$ )ea"+%e th%$+*h&+t an# the )$"t e--icient an# acc+%ate )eth$# $- c$,,ectin* that #ata.
Throughput L $ x % x & where
$ L total production 8units9 G processing time % L processing time G total elapsed real time & L good units G total production 8units9
$ x % x & reduces down to good unitsGtotal elapsed real time The key data needed are1
• total production in units
• good units produced 8i.e., those without defects9 • time spent performing production tasks
• total time
The $I! can calculate total time by recording *9 the time when the production order was released and ;9 the time when it was completed and the products were placed into
finished goods inventory.
Total time spent in operations 8processing time9 can be collected by measuring the time spent on each operation. This can be most accurately done with badge or card readers at each station.
Total production can be recorded by counting 8with bar-code scanners or using 4'I/ tags , if possible9 all units produced at each step of the manufacturing process.
!ubtracting defective units from total production yields good production.
roduction in multi-stage processes is probably the most difficult to measure accurately, especially if defects are identified continuously because then it is necessary to track all such partially completed work to obtain a more accurate measure of throughput.
14.; The $"e&h 7%ant 6an+-act+%in* C$)&any )a2e" ath,etic -$$tea%. P%$ce""in* $-&%$#+cti$n $%#e%" i" a" -$,,$"? At the en# $- each ee2( the $-&%$#+cti$n &,annin* #e&a%t)ent &%e&a%e" a )a"te% &%$#+cti$n "che#+,e 96PS: that ,i"t" hich "h$e "ty,e" an# >+antitie" a%e t$ !e &%$#+ce# #+%in* the ne't ee2. A &%$#+cti$n $%#e% &%e&a%ati$n &%$*%a) acce""e" the 6PS an# the $&e%ati$n" ,i"t 9"t$%e# $n a
&e%)anent #i"2 -i,e: t$ &%e&a%e a &%$#+cti$n $%#e% -$% each "h$e "ty,e that i" t$ !e )an+-act+%e#. Each ne &%$#+cti$n $%#e% i" a##e# t$ the $&en &%$#+cti$n $%#e% )a"te% -i,e "t$%e# $n #i"2.
Each #ay( &a%t" #e&a%t)ent c,e%2" %evie the $&en &%$#+cti$n $%#e%" an# the 6PS t$ #ete%)ine hich )ate%ia," nee# t$ !e %e,ea"e# t$ &%$#+cti$n. A,, )ate%ia," a%e !a%c$#e#. Fact$%y $%2e%" $%2 in#ivi#+a,,y at "&ecia,,y #e"i*ne# U"ha&e# $%2 a%ea" e>+i&&e# ith "eve%a, )achine" t$ a""i"t the) in c$)&,ete,y )a2in* a &ai% $-"h$e". Fact$%y $%2e%" "can the !a%c$#e" a" they +"e )ate%ia,". T$ $&e%ate a
)achine( the -act$%y $%2e%" "i&e thei% ID !a#*e th%$+*h a %ea#e%. Thi" %e"+,t" in the "y"te) a+t$)atica,,y c$,,ectin* #ata i#enti-yin* h$ &%$#+ce# each &ai% $- "h$e" an# h$ )+ch ti)e it t$$2 t$ )a2e the).
Once a &ai% $- "h$e" i" -ini"he#( it i" &,ace# in a !$'. The ,a"t )achine in each $%2 ce,, &%int" a !a%c$#e ,a!e, that the $%2e% a--i'e" t$ the !$'. The c$)&,ete# "h$e" a%e then "ent t$ the a%eh$+"e.
a. repare a data flow diagram of all operations described. ;.+ repare roduction <rder =.+ erform roduction <peration inventory sales forecasts open production orders operations list bill of materials roduction <rder <perations &ard roduction <rders !cheduled roduction 0! *.+ lan roduction E<2 ork $ctivity
!. What c$nt%$, &%$ce#+%e" "h$+,# !e inc,+#e# in the "y"te)
$ large number of controls are possible, including the following1
• $ccess &ontrol - Hser I/ and assword • &ompatibility Test - assword
• reformatting or rompting -$ll /ata Fntered • 4ecord &ount - M of Transactions
• alidity &heck - roduct &ode Kumber • ?imit &heck - roduction Euantity • 'ield &heck - roduction /ate • 'ield &heck - Euantity
• &ompleteness Test - Fach 4ecord • 'ile ?ibrary - ?og 0aster 'iles • Fxternal ?abels - 0aster 'iles • 2eader ?abels - 0aster 'iles
• %ackup &opy - <perations ?ist and %ill of 0aterials • %ackup &opy - roduction <rders
• 4ecord &ount - M of <perations
• !e#uentially Kumbered roduct <rders
• 4easonableness &heck - /ate &ompleted versus date started • alidity &heck - Fmployee Kumber
14.B The YJ c$)&any0" c+%%ent &%$#+cti$n &%$ce""e" have a "c%a& %ate $- 1; an# a %et+%n %ate $- . Sc%a& c$"t" 9a"te# )ate%ia,": a%e @13 &e% +nitK a%%anty%e&ai% c$"t" ave%a*e @B &e% +nit %et+%ne#. The c$)&any i" c$n"i#e%in* the -$,,$in*
a,te%native" t$ i)&%$ve it" &%$#+cti$n &%$ce""e"?
• O&ti$n A? Inve"t @4( in ne e>+i&)ent. The ne &%$ce"" i,, a,"$ %e>+i%e
an a##iti$na, @1.; $- %a )ate%ia," &e% +nit &%$#+ce#. Thi" $&ti$n i" &%e#icte# t$ %e#+ce !$th "c%a& %ate" %et+%n %ate" !y 4 -%$) c+%%ent ,eve,".
• O&ti$n 7? Inve"t @;( in ne e>+i&)ent( !+t "&en# an a##iti$na, @.3 $n
hi*he% >+a,ity %a )ate%ia," &e% +nit &%$#+ce#. Thi" $&ti$n i" &%e#icte# t$ %e#+ce !$th "c%a& an# %et+%n %ate" !y -%$) c+%%ent ,eve,".
• O&ti$n C? Inve"t @3(( in ne e>+i&)ent. The ne &%$ce"" i,, %e>+i%e n$
chan*e in %a )ate%ia,". Thi" $&ti$n i" &%e#icte# t$ %e#+ce !$th "c%a& an# %et+%n %ate" !y ; -%$) c+%%ent ,eve,".
a. A""+)e that c+%%ent &%$#+cti$n ,eve," $- 1(( +nit" i,, c$ntin+e. Which $&ti$n #$ y$+ %ec$))en# Why
$t current production levels of *,+++,+++ units, none of the options reduce total costs, but option % results in the smallest increase in total costs.
O&ti$n A?
Investment L N>++,+++ O N*.@ x *,+++,+++ units L N*,D++,+++. !avings L N*,>>+,+++1
4educed scrap costs L >+ x *@ x N*; x *,+++,+++ units L NB;+,+++
4educed warrantyGrepair costs L >+ x = x NA+ x *,+++,+++ units L NB;+,+++
O&ti$n 7?
Investment L N@+,+++ O N=.; x *,+++,+++ units L N=,;@+,+++ !avings L N=,;>+,+++1
4educed scrap costs L D+ x *@ x N*; x *,+++,+++ units L N*,A;+,+++
4educed warrantyGrepair costs L D+ x = x NA+ x *,+++,+++ units L N*,A;+,+++
O&ti$n C?
Investment L N;,+++,+++ !avings L N*,C++,+++1
4educed scrap costs L @+ x *@ x N*; x *,+++,+++ units L ND++,+++
!. A""+)e that !eca+"e a,, $- the &%$&$"e# chan*e" i,, inc%ea"e &%$#+ct >+a,ity( that &%$#+cti$n i,, 5+)& t$ 1(;( +nit". Which $&ti$n #$ y$+ %ec$))en# Why
$t production levels of *,@++,+++ units, options % and & both reduce total costs. <ption &, however, reduces them the most.
O&ti$n A?
Investment L N>++,+++ O N*.@ x *,@++,+++ units L N;,A@+,+++. !avings L N;,*A+,+++1
4educed scrap costs L >+ x *@ x N*; x *,@++,+++ units L N*,+C+,+++ 4educed warrantyGrepair costs L >+ x = x NA+ x *,@++,+++ units L N*,+C++,+++
O&ti$n 7?
Investment L N@+,+++ O N=.; x *,@++,+++ units L N>,C@+,+++ !avings L N>,CA+,+++1
4educed scrap costs L D+ x *@ x N*; x *,@++,+++ units L N;,>=+,+++
4educed warrantyGrepair costs L D+ x = x NA+ x *,@++,+++ units L N;,>=+,+++
O&ti$n C?
Investment L N;,+++,+++ !avings L N;,B++,+++1
4educed scrap costs L @+ x *@ x N*; x *,@++,+++ units L N*,=@+,+++
4educed warrantyGrepair costs L @+ x = x NA+ x *,@++,+++ units L N*,=@+,+++
14. ECEL PRO7LE6
!. C%eate -$%)+,a" t$ ca,c+,ate
• Acc+)+,ate# #e&%eciati$n 9a,, a""et" +"e the "t%ai*ht ,ine )eth$#K a,, a""et"
ac>+i%e# any ti)e #+%in* the yea% *et a -+,, yea%0" initia, #e&%eciati$n:
• C+%%ent yea%0" #e&%eciati$n 9"t%ai*ht,ine )eth$#( -+,, a)$+nt -$% initia,
yea% in hich a""et ac>+i%e#:
• En#in* acc+)+,ate# #e&%eciati$n • Net !$$2 va,+e at en# $- &e%i$#
• C+%%ent yea% in the ce,, t$ the %i*ht $- the &h%a"e <De&%eciati$n "che#+,e -$%
yea%=
• C$,+)n t$ta," -$% ac>+i"iti$n c$"t( !e*innin* #e&%eciati$n( c+%%ent
#e&%eciati$n( en#in* acc+)+,ate# #e&%eciati$n( net !$$2 va,+e
• In the ce,, t$ the %i*ht $- the a%%$ -$,,$in* the te't <C%$""-$$tin* te"t=
e>+a," the "+) $- ac>+i"iti$n c$"t" )in+" the "+) $- en#in* acc+)+,ate# #e&%eciati$n. I- the t$ va,+e" )atch( the -$%)+,a "h$+,# #i"&,ay the te't <O2ay= $the%i"e it "h$+,# #i"&,ay the te't <E%%$%=
c. C%eate a ta!,e at the !$tt$) $- y$+% $%2"heet that c$n"i"t" $- t$ c$,+)n"? A""et na)e 9va,+e" "h$+,# !e chai%( #e"2( ,a&t$&( )$nit$%( "$-ta%e( an# $%2"tati$n:
Net !$$2 va,+e 9c%eate a -$%)+,a t$ ca,c+,ate thi" n+)!e%: a""+)in* that the c+%%ent #ate i" B31
• C%eate a -$%)+,a that "+)" the t$ta, net !$$2 va,+e" -$% a,, c,a""e" $- a""et" • In the ce,, t$ the %i*ht $- the t$ta, net !$$2 va,+e" -$% a,, a""et c,a""e"( c%eate
a -$%)+,a that c$)&a%e" the t$ta, net !$$2 va,+e" -$% a,, c,a""e" $- a""et" t$ the "+) $- a,, net !$$2 va,+e" in the t$& &$%ti$n $- the "&%ea#"heet. The -$%)+,a "h$+,# %et+%n <O2ay= i- the t$ t$ta," )atch $% <E%%$%? S+) $- net !$$2 va,+e" !y a""et c,a"" #$e" n$t e>+a, "+) $- a,, net !$$2 va,+e"= i- the t$ t$ta," #$ n$t e>+a, $ne an$the%.
Kote1 this solution was created assuming that the current year is ;+**. Therefore, when using the problem in subse#uent years, you may want to have students increment all years initially placed
in service by one. Hseful formulas1
• &urrent year1 LJF$48T</$J899 this calculates the current year. In cell F;, it is
currently set to increment by * because the solution was created in ;+*+, but designed to mimic ;+**. Therefore, when using this problem in ;+** and subse#uent years, students should not increment it by *, but simply have the formula LJF$48T</$J899 to return the value of the current year.
• Fxcel has a built-in function for computing straight-line depreciation1 !?K. The !?K
function takes three arguments1 cost, salvage value, and estimated life1 !?K8cell with cost, cell with salvage value, cell with estimated life9.
• %eginning accumulated depreciation e#uals the minimum of actual accumulated
depreciation, if the asset is not yet at the end of its useful life, or ac#uisition cost minus salvage value if it is past the end of its useful life. In the solution, beginning accumulated depreciation is based on running the spreadsheet in ;+**. hen using this problem in ;+*; and subse#uent years, you should have students increment the ac#uisition years by one so that the answer remains the same as shown. Kote that the formula references cell F; to facilitate use in any year1 L0IK8$?HF8NFN;-JF$48/@99P!?K8'@,Q@,F@9,'@-Q@9. I0<4T$KT1 be sure that student formulas reference only cell F; 8NFN;9, but use relative references for all other terms.
• &urrent period depreciation is either the result of the straight-line depreciation
calculation, if the asset has not yet been fully depreciated, or zero1 LI'8'@-2@LQ@,+,!?K8'@,Q@,F@99
• Fnding $ccumulated depreciation1 L2@OI@
• Ket book value e#uals ac#uisition cost less accumulated depreciation. Thus for the desk
8account **++*9 the formula is L'@-7@.
• &ross-foot test1 LI'86*DL'*D-7*D,R<kayR,RFrrorR9
• Ket book values for asset classes1 L!H0I'8N&N@1N&N*B,&;;,N6N@1N6N*B9 copy
down, note that second entry does K<T use absolute cell references
• &ross-foot check of net book values by class versus by asset1
LI'8/;CL6*D,RokayR,RFrror1 !um of net book values by asset category does not e#ual total net book valuesR9
14. ECEL PRO7LE6
Ta"2? U"e E'ce, an# the S$,ve% a##in t$ e'&,$%e the e--ect $- va%i$+" %e"$+%ce c$n"t%aint" $n the $&ti)a, &%$#+ct )i'.
a. Rea# the a%tic,e <7$$"t P%$-it" With E'ce,(= !y a)e" A. Wei"e, in the Dece)!e% 3 i""+e $- the Journal of Accountancy 9avai,a!,e $n,ine at the AICPA0" We! "ite( .aic&a.$%*
!. D$n,$a# the "a)&,e "&%ea#"heet #i"c+""e# in the a%tic,e an# &%int $+t the "c%een"h$t" "h$in* that y$+ +"e# the S$,ve% t$$, a" #i"c+""e# in the a%tic,e.
To load !olver in Fxcel ;++B, click on the (0icrosoft <ffice %utton) in the upper left corner of an Fxcel spreadsheet. Then click on Fxcel <ptions to open the following screen, select $dd-Ins, highlight (!olver $dd-in) and click the (Qo) button1
Then, to use !olver1
;. Then enter the values in the cells in the !olver pop-up window as instructed in the article 1
>. The result is the following spreadsheet as shown in the article1
@. !tudents should save screen shots to show that they have followed the remaining steps in the article.
&licking (!olve) and then (6eep the !olver !olution) yields the following spreadsheet, as shown in the article1
'inally, adjusting the total amount of labor hours and dollars and re-running the !olver yields the final spreadsheet depicted in the article1
c. Re%+n the S$,ve% &%$*%a) t$ #ete%)ine the e--ect $- the -$,,$in* acti$n" $n inc$)e 9&%int $+t the %e"+,t" $- each $&ti$n:?
• D$+!,e )a%2et "ha%e ,i)itati$n" -$% a,, th%ee &%$#+ct" &,+" the -$,,$in*
c$n"t%aint? "a+ce ca"e "a,e" cann$t e'cee# ; $- the "+) $- "$+& an# ca""e%$,e ca"e "a,e"
14. ECEL PRO7LE6
C%eate the "&%ea#"heet "h$n in Fi*+%e 1411. W%ite -$%)+,a" t$ ca,c+,ate the t$ta, #e&%eciati$n e'&en"e an# t$ #i"&,ay the c$%%ect va,+e" in the -$,,$in* th%ee
c$,+)n"? A*e( De&%eciati$n Rate( an# De&%eciati$n E'&en"e. 9 Hint ? Y$+ i,, nee# t$ +"e the MLOO8UP an# 6ATCH -+ncti$n" t$ #$ thi". Y$+ )ay a,"$ ant t$ %ea# the a%tic,e <D$+!,eTea)in* In E'ce,(= !y +#ith 8. We,ch( L$i" S. 6ah$ney( an# Danie, R. 7%ic2ne%( in the N$ve)!e% 3; i""+e $- the Journal of Accountancy( -%$) hich thi" &%$!,e) a" a#a&te#:.
!olution is on next page1
/epreciation expense formula1 L?<<6H87@,N$N>1N/N*>,0$T&282@,N$N>1N/N>,+99 - explanation of formula1
• The age column subtracts the year the asset was purchased from the reference year in cell
2=. It then adds one to that value because the year the asset is purchased is its first year of depreciation.
• The ?<<6H function extracts tax rate from the tax table. The first argument to the
?<<6H function is the asset"s age. The second argument is the location of the vlookup table 8cells $*> to /*>, using absolute references so that the formula can be correctly copied9. The third argument is the row in which to find the answer. In this case, the row is given by the result of the 0$T&2 function.
• The first argument of the 0$T&2 function is the cell which contains the asset class
8column 29. The second argument indicates where the column headings are for the
different classes 8$>1/>9. The third argument 8+9 indicates the match type where + means an exact match.
• •
•
SUGGESTED ANSWERS TO THE CASES
•
• CASE 141 The Acc$+ntant an# CI6
• E'a)ine i""+e" $- the Journal of Accountancy( Strategic Finance( an# $the%
!+"ine"" )a*a/ine" -$% the &a"t th%ee yea%" t$ -in# "t$%ie" a!$+t c+%%ent #eve,$&)ent" in -act$%y a+t$)ati$n. W%ite a !%ie- %e&$%t that #i"c+""e" the acc$+ntin* i)&,icati$n" $- $ne #eve,$&)ent? h$ it a--ect" the e--iciency an#
acc+%acy #ata c$,,ecti$n an# any ne $&&$%t+nitie" -$% i)&%$vin* the >+a,ity $-&e%-$%)ance %e&$%t". A,"$ #i"c+"" h$ the #eve,$&)ent a--ect" the %i"2" $- va%i$+" &%$#+cti$n cyc,e th%eat" an# the c$nt%$, &%$ce#+%e" +"e# t$ )iti*ate th$"e %i"2".
•
• There is no one correct answer. In addition to grading on writing #uality, be sure
that students fulfill task re#uirements 8i.e., describe the development, the controller"s role, and the effect on production cycle threats9. The logical reasoning used to support any analysis should also be evaluated.
• • • •
