Accounting, Time And Efficiency

Question 1

Just Tim time

Answer 1

System in which materials arrive exactly as they are needed

Minimisation/elimination of stock

Question 2

Just in time production

Answer 2

Mechanism in which each component on a production line is produced immediately as needed by the next step in the production line

Question 3

Kanban system

Answer 3

Kanban: visual record or card

Kanban cards are used to signal specified quantities to be produced

Question 4

JIT Features

Answer 4

Production in organised in manufacturing cells.
Hiring and retaining multi skilled workers.
Total quality management is emphasised = encourages to eliminate defects
Reduction of set-up time and manufacturing lead time
- manufacturing lead time = time when an order starts in the production line until it becomes a finished good
Building strong relationships with suppliers.

Question 5

How to manage the bottleneck

Answer 5

1) Recognise that the bottleneck resource determined throughout contribution of the plant as a whole.
2) Search and find the bottleneck resource by identifying resources with large quantities of stock exiting to be worked on.
3) Keep bottleneck operation busy and subordinate all non-bottleneck resources to the bottleneck resource.
4) Take actions to increase bottleneck efficiency and capacity by increasing contribution -incremental costs of taking actions.

Question 6

The economic order quantity

Answer 6

Decision model calculates the optimal quantity of stock to order.
Assumptions:
The same fixed quantity is ordered at each reorder point.
Demand, ordering costs and carrying cats are known with certainty.
Purchase-order lead time = time between placing of an order and it’s delivery is also known with certainty.
Purchasing costs per unit are unaffected by the quantity ordered.
No stockouts occur.
In deciding the size of the purchase order, managers consider the costs of quality only to the extent that these costs affect ordering costs or carrying costs

Question 7

Reorder point

Answer 7

Is the quantity level of the stock on hand that triggers a new order

Question 8

Safety stock

Answer 8

Is stock held at all times regardless of the quantity of stock ordered using the EOQ model. It is used as a buffer against unexpected increases in demand or lead time and unavailability of stock from suppliers

Question 9

Just in time purchasing

Answer 9

The purchase of goods and materials such that a delivery immediately precedes demand it use.
Extends beyond the EOQ model by including purchasing costs, stockout costs and quality costs.
It requires restructure of organisations relationships with suppliers. (Smaller and frequent orders).
Full costs of carrying stocks have been underestimated. (E.g stock storage)

Question 10

How to evaluate suppliers

Answer 10

Companies needs to to choose suppliers carefully and develop long-run partnership (p.682)

-Quality costs of good and materials
(E.g inspection costs, returns; scrap costs, etc)

• costs of late deliveries
  E.g foregone contribution margin of lot sales
• costs of early delivery
  Carrying costs

Question 11

The theory of constraints

Answer 11

Describes methods to maximise operating profit when faced with some bottleneck and some non-bottleneck operations

Question 12

Bottleneck

Answer 12

Dependencies among operations

E.g products made from multiple pets and processed in different machines

Question 13

Key criteria of transfer prices

Answer 13

Promote goal congruence
Help top managers evaluate the performance of individual subunits.
Include managers to exert a high level of effort:
Selling subunits should be motivated to hold down their costs
Buying subunits should be motivated to acquire and use inputs efficiently.
Preserve autonomy of subunits in decentralised organisation:
A manager seeking to maximise the operating income should have the freedom to transact with external parties and other subunits of the company.

Question 14

Market - based transfer prices

Answer 14

In a perfectly competitive market, there is no idle capacity.
Division managers can buy and sell as much as they want at the market price.
Buyers or sellers cannot affect the market price.
By using market-based transfer prices of a company can achieve:
- Goal congruence
- Management effort
- Subunit performance evaluation
- Subunit autonomy

Question 15

Basis of market-based transfer prices

Answer 15

Serves to evaluate the economic viability and profitability of divisions.
Motivates division managers to deal internally and act as if they were dealing externally.
When supply outstrips demand, market prices may drop well below their historical average creating distress prices
- Distress prices are expected to be temporary.
Which transfer price should be used for judging performance if distress prices prevail?
Distress prices or normal market prices

Question 16

Cost based transfer prices

Answer 16

Helpful when market prices are unavailable, inappropriate or too costly to obtain.
Many companies use transfer prices based on full costs.
To approximate market prices, cost-based transfer prices are sometimes set at full cost plus a margin.

Question 17

Dual pricing

Answer 17

There is seldom a single cost-based transfer price that simultaneously meets the criteria of goal congruence, management effort, subunit performance evaluation and subunit autonomy.
Dual pricing is using two separate transfer pricing methods to price each interdivision transaction.

Question 18

The procedure of dual pricing

Answer 18

1) credit the supplying division with the full cost transfer price
2) Debit the receiving division with the market based transfer price
3) Debit a corporate cost account for the difference between the two transfer prices.
Dual pricing is not widely used in practice even though it reduces the goal-congruence problem associated with a pure-cost-based transfer pricing method.