Geli Ch15 SMsa

8/18/2019 Geli Ch15 SMsa

1/22

Account ing Information Systems, 7e 1

SOLUTIONS FOR CHAPTER 15

Discussion Questions

DQ15-1 This chapter discusses the complexities of competing in a highly competitiveglobal manufacturing environment. Discuss how enterprise systems can help anorganization streamline its processes and become more competitive.

ANS. The following factors were discussed in the chapter:

This answer should probably begin with a discussion of the issues facing

manufacturers in the global economy. Based on the Deloitte and Touche surveydiscussed in the text, manufacturing organizations are under pressures to do the

following:

• Reduce costs throughout the value chain.

• Pursue lucrative markets and channels.

• Develop new, innovative products more quickly.

Organizations that successfully accomplish these goals have the following:

• Improved internal business processes in the areas of customers, products, andsupply chains

•

Better uses of technology to increase integration within and between thesethree areas (customers, products, and supply chains)

• Better general capabilities in the areas of collaboration, flexibility, visibility,

and technology

Enterprise systems help achieve these three goals by doing the following:

• Enterprise systems help to streamline business processes in the areas

mentioned by providing better information for decision making and byhelping to automate processing of information.

•

Enterprise systems add-ons, including customer resource management, supplychain management, and product lifecycle management, help better integrate

within each of the three areas and between them by providing a morecomprehensive view of data.

• Enterprise systems facilitate collaboration through sharing of data. They

increase flexibility and visibility by making data available across theorganization, and they allow for much greater technological integrationthrough systems and data integration.


2/22

2 Solutions for Chapter 15

Enterprise systems specifically help out in the four key areas discussed asimportant for achieving the three goals as follows:

• Product innovation: Enterprise systems assure that changes made inengineering can be automatically incorporated into production, decreasing thetime to market for new innovations. Product lifecycle management further

enhances communication and decreases time to market.

• Production process innovation: Enterprise systems are vital in managingefficient control of production as well as for gathering useful information

throughout the production process.

• Supply chain management: Enterprise systems provide the information aboutsuppliers to conduct effective supply chain management and facilitate

available-to-promise planning and capable-to-promise planning. Enterprisesystems also facilitate supply chain management by enabling e-business

connections between the organization and its suppliers and customers.

•

Management accounting: Enterprise systems facilitate both activity-basedcosting and lifecycle costing by gathering a greater variety of informationthrough automated techniques such as shop floor control and by making thisinformation more readily available.

DQ15-2 What industry do you believe is a leader in enterprise systems implementations? Discuss what you think are the major contributing reasons for that leadership.

ANS. One possible answer to the question is the automotive industry, wheremanufacturers produce very complex products using highly automated processes.

They must coordinate a large number of suppliers on a global scale. The result is astrong need for the technologies described in this chapter to manage their

integrated production processes. As discussed at the beginning of the chapter,automotive manufacturers feel strong pressures to reduce lifecycle costs, expand

their value chain into new markets, and increase the speed of innovation tocompete with new market entrants on a global scale.

DQ15-3 Table 15.1 presents a summary of trends in cost management and cost accountingthat have occurred over the past two decades.

a. Which trends do you consider most significant? Explain your answer.

ANS. As discussed in the chapter text, the move toward more accurate and detailed costinformation that cuts across the value chain and across the life of the product

presents a significant trend toward focusing on the use of cost information tostrategically manage the enterprise. This information takes the form of activity- based costing and lifecycle costing. The following trends from Table 15.1 might

also be cited as the most significant:

• Direct charging of overhead costs will challenge the cost accountant to

develop new methods for collecting and charging cost data.


3/22


• The increased emphasis on managing, rather than just reporting, costs places

the cost accountant in a different, and much more important, position in the

manufacturing organization.

• To effectively utilize a new cost category, direct technology, a cost accountant

must understand the manufacturing application of the technology.

•

Cost accounting has been a fairly stable discipline. The need for flexible cost

processes, real-time data capture, direct technology costs, and so on will

change the nature and rate of change of the cost accounting discipline.

• Some cost trends that might fly in the face of what has been learned intraditional cost accounting classes include the following:

• Shift from direct labor to some other basis for charging overhead.Although direct labor is becoming a less important cost component, many

firms cling to direct labor as a method for applying overhead. Automationcosts (a fixed cost) or time spent in a production step are often cited as

more meaningful bases for allocating overhead.

• Shift away from standard costs to actual costs.

• Shift away from job order to process costing.

• Accumulating noncost statistical information—such as defect rates—in

addition to pure financial data

• Shift away from full-absorption costing as inventories become lessimportant.

b. The first footnote to Table 15.1 indicates that there are additional cause-and-

effect relationships that could be shown between the items in the right columnand those in the left column. Give several examples (with explanations) ofthose other relationships.

ANS. Other than the relationships shown in Table 15.1, the following relationshipsmight be described:

• Real-time data captured on the factory floor will be required to effectively

monitor automated factories.

• Cell throughput time might be a factor in managing the shorter product life

cycle.

•

Statistical data might be useful in making decisions in the new shorter lifecycle.

• Factory automation has contributed to the trend away from job order to

process systems.

• Automated information processes include reporting capabilities to assiststrategic planning and decision making.


4/22


DQ15-4 “A company cannot implement a just-in-time (JIT) process without making aheavy investment in computer resources.” Do you agree? Discuss fully.

ANS. Overall, don’t agree. JIT processes generally do not require sophisticatedcomputer resources. In fact, some JIT processes are implemented using the

kanban card as the media for routing production orders and collecting data. Thistakes the place of many of the sophisticated routines involved in the

Manufacturing Resource Planning process (both materials requirements planningand capacity requirements planning). The only area where more sophisticated

resources are needed is in relation to communicating materials requirements and production schedules to suppliers. Here, JIT may require the use of more

sophisticated methods, such as EDI, which assure that accurate, timelyinformation is available for shipping materials just-in-time. Further, an

examination of Exhibits 15.1 and 15.2 will disclose that much of the JIT approachis philosophical and does not require sophisticated computer technology. For

example, an organization can achieve zero defects without complicated computersupport.

DQ15-5 “A company cannot implement manufacturing resource planning (MRP) withoutmaking a heavy investment in computer resources.” Do you agree? Discuss fully.

ANS. Agreed. MRP’s three main components material requirements planning,

capacity requirements planning, and cash flow planning each involve complexcomputations and manipulation of large amounts of data and large files. These

computations and data and file manipulations require significant computational power. For example, to prepare the “time-phased order requirements,” the

information process must access the finished goods, raw materials, open purchaseorders, manufacturing orders data, the bill of materials, and parts master data, and

then perform the necessary computations to prepare the “planned order.”

DQ15-6 “A company cannot implement a flexible manufacturing process (FMS) withoutmaking a heavy investment in computer resources.” Do you agree? Discuss fully.

ANS. Agreed. An examination of Figure 15.1 should reveal that most of the flexiblemanufacturing components are, by definition, computerized. For example,

engineering designs, routing master records, and the bill of materials areautomatically called to run machines and route parts. Additionally, shop floor

control involves a number of activities specifically designed to automaticallycollect data.

DQ15-7 A main goal of just-in-time (JIT) is zero inventories.a. Assuming your company does not aspire to JIT and has $1,000,000 in raw

materials in stock, identify cost that may be incurred to maintain the inventorylevel.

ANS. a. The cost of carrying inventory may include incremental taxes, insurance,

spoilage, warehouse space, security, labor to move and maintain, and so on.


5/22


b. Now assume that you implement JIT, and your raw materials in stock drop to zero. Explain how you expect this change to impact your income statementand balance sheet.

ANS. b. On the surface, the costs in part a evaporate, but, in typical JIT environments,the supplier is required to maintain a certain level of inventory. By doing this,

it is likely that raw material prices will increase, unless the vendor can save inother areas (or chooses to reduce profits). Assets on the balance sheet should

decline. Expenses, related to carrying cost of raw materials, should beeliminated (in a true JIT), whereas cost of goods sold may rise because of an

increase in expenses to the suppliers.

DQ15-8 Without redrawing the figure, discuss the changes that would occur in Figure15.7if the company used an actual costing process instead of a standard cost process.

ANS. Note: Although the question specifically states that Figure 15.7 is not to beredrawn, your understanding of the following solution will be improved if you

review it in conjunction with the solution to P15-8, which shows the redrawnFigure 15.7.

Changes in process inputs:

• A single RM issue notice reflecting the actual materials issued (and the actualcost of those materials) would replace the following flows in Figure 15.7:

• Standard RM issue notice

• Excess RM issue notice

• RM returned notice

•

Job time tickets and at least a final completed move ticket would continue to be process inputs.

Changes in process outputs:

• In the absence of a standard cost process, there would be no variance reports

to managers or variance updates to the General Ledger process.

• A data flow called “GL actual costs update” would replace the flow, “GLstandard cost update.”

• The flow, “GL cost of goods completed update,” would remain but would nownotify the General Ledger process of the actual (not standard) cost of the jobs

completed and transferred to finished goods.• Because finished goods inventories are not carried at standard costs, an

additional flow would run to the Inventory process to notify it of the actualcost of the jobs completed and transferred to finished goods.


6/22


Changes in process data:

• The Standard Cost master data and General Ledger master data would not

appear in the process.

• The other three files would continue, but two of them would change as

follows:

• The Work in Process inventory data would reflect actual materials used,

actual direct labor incurred, and applied manufacturing overhead.

• The Budgets master data would be the source of predetermined overheadrates that the process would use to apply overhead to work in process.

Changes in system processes:

• The five process bubbles shown in Figure 15.7 would be replaced by the

following processes:

• 1.0 Record RM cost

• 2.0 Distribute manufacturing labor

• 3.0 Apply manufacturing overhead

• 4.0 Report WIP costs incurred

• 5.0 Close manufacturing orders and compute actual unit costs.

DQ15-9 Discuss how the inventory control process goals support the production planning process and the risks to the production process if such controls are not in place. Do not limit your discussion to loses from fraud.

ANS. As organizations struggle to remain competitive in a global manufacturingenvironment and to enhance their effectiveness and efficiency, inventory control

becomes critical. If inventory levels are too high, an organization risks being leftholding nonusable products or materials (and the related losses). On the other

hand, if inventory levels are too low, then manufacturing processes can be broughtto a standstill due to a lack of materials, or customer demands may not be met due

to stock outages of finished goods. Inventory levels may vary based on theft,waste, obsolescence, improper recording of usage, and other factors. When actual

materials or finished goods quantities are not accurately reported, this problem

can impact both an organization’s capability to maintain adequate stock levels andthe costs that must be absorbed into finished goods’ cost and the resulting product pricing.


7/22


8/22


3.1ExplodeBills of

Materials

Partsmaster

3.2Develop

Time-phasedorder

requirements

Bill of materialsmaster

MaterialsNeeds

RM/WIPinventory

status

3.3GeneratePurchase

Requisitions

PurchaseNeeds

Purchase

requisitions

Master productionschedule Time-phased

order requirementsschedule

Open purchaseorder data

Key:RM = Raw materi alsWIP = Work i n pr oce ss

FIGURE SM-15.2 Problem 15-2 solution


9/22


4.1

Obtaincapacity

information

Routingmaster

Work center master

Work ce nter status

KEY

MO = Manufacturing order s

4.2Release MOs,move t icketsand materialsrequisit ions

Details of machineand labor capacity

and needs

Time-phasedorder

requirements

Master ProductionSchedule

Employee/Payroll Master

Data

4.3Update

schedules

Raw materi alsrequisit ions

Movetickets

ManufacturingOrders

Detailedproduction

plan



10/22


Master ProductioSchedule

listsBill of

MaterialsMaster

Lists

Parts Maste r

Routing

Master

associated

With

shows

Work Center Master

Work Center Status

has

Time PhasOrder

Requireme

Schedule

is for

ManufacturingOrders

MoveTickets

are for

associated

wi th

l ists

issuedfo r

RMIssue/Retur

Notices

are for

l ist

Parts M aster

associatedwith

WIPInventory

Status

FG InventoryStatus

Assoc iatedwith

are for

l ist

associatedwith

Employee/Payroll

Master Data

Job TimeRecord

associatedwith



11/22

Account ing In formation Systems, 7e 11

5.2Update MOand work

center status

ManufacturingOrders

KEY

MO = Manufacturin g order sRM = Raw mater ials

Note: The or der o f step s 5.4 and 5.5within the process is unimportant.

Work center status

5.3Update wor kcenter

status andclose MO

5.5Process

RM Issues/Returns

RM issue /return notices

5.4Process

EmployeeTime

Job TimeRecords

5.1Capture

move t icket

data

Work pr ogressdata

Movetickets

Labor Time

Material Usedata

Finished goodsinventory status



12/22


13/22

Account ing

Creatinvento

Create WIPinventory record

Completedmove t icket

Notification of

manufacturing ord er released to production

From DCRP

Winve

Maste

KEY

FG = Finished goodsMO = Manufacturing orders

Cost Accounting Department Comp

From productionwork centers

Key completedmove t icket

Print standardcosts appliednotification

To generalledger process

Update WIP for standard labor and overhead

Update WIP for standard cost of

raw materialsFrom inventory

control

Standard rawmaterials

requisitions

Key completedraw materials

requisitions

WIPinventory

recordscreen

Move t icketscreen

Rawmaterials

requisitionscreen

Standard costsapplied

notification

NO

on

FIGURE SM-15.6 Problem 15-6, solution flowchart, page 1


14/22


Cost Accounting Depar tment Computer

From inventor ycontrol

MD

MORMWIP

Raw materialsreturned notice

Excess rawmaterials issuenotice

Job timetickets

A

A

B

32

Variance 1report To gen eral

ledger process

Cost of good scompleted notice

Enter ex cessquantit ies

Calculate RMusage v ariance

Standardcosts MD

Calculate labor variances

Variancesdata

Calculatevariances

Print monthlyvariance reports

To p roductioncontrol supervisor

To v ariousmanagers

Close inventor yrecord and compute

standard cost of goods completed

Standardcosts MD

From production

work centers

At e nd of e ach

accounting period

Key menu optionto compute MOvariances

BKey actualhours worked

From productionwork centers

Final completedmove t icket

Close MO

WIPinventory

MD

FIGURE SM-15.6 Problem 15-6, solution flowchart, page 2


15/22


Standard

costaccounting

process

Generalledger

process

KEY

RM = Raw mater ialsDL = Dire ct labo r MOH = Manufacturing ov erhead

Variousmangers

Productionwork

centers

Inventoryprocess

Moveticketdata

Job timedata

Final mov e ticket data

RM variancereport

DL v ariance

report

MOH variancesreport

Standard RMissue notice

Excess RMissue notice

RM retur nednotice

GL standardcosts applied

update

GL RMvariances

update

GL DLvariances update

GL MOH

variancesupdate

GL cost of g oodscompleted update

FIGURE SM-15.7 Problem 15-7, part a solution


16/22


Standard cost accountingprocess

Variousmangers

DCRPprocess

Productionwork

centers

Standard RMrequisit ion

RM purchase pricevariance repor t

RM quantity variance

report

DL variancesreport

Excess RMrequisit ion

Completed mov e

ticket

Job time tickets

GL RM reupda

GL RM purchprice v ariance u

GL standard co sts

applied update

GL RM quanti tyvariance update

Gl DLvariances

update

Purchasingprocess

RM payableinventory

notification

RM receip t notification

MOH variancesreport

KEY

DCRP = Detailed capacity req uir ement s planni ngDL = Direct labor MOH = Manufacturin g ov erheadRM = Raw materials

RM ret urnednotice

Final completedmove ticket

GL MOH varianceupdate

Gl cost of goodscompleted update

AP/CDprocess

FIGURE SM-15.8 Problem 15-7, part b solution—context diagram


17/22

Account ing

1.0Record

receipt of RM

AP/CDprocess

RM receiptnotification

GLRMreceivedupdate

2.0Isolate

purchaseprice

variance

RM payableinventory

notif ication RM master data

(Std. cost of goods received)

Generalledger

process

GL RM purchaseprice variance

update

RM purchase price

variance report

3.0Record

standard costsapplied to

WIP

RM master data

DCRPprocess

Standard RMRequisition

Completedmove ticket

4.0Compute RM

quantityvariance

RM master data

Excess RMrequisition

RM ret urnednotice

Gl RMquantityvariance update

Variousmangers

RM quantityvariance repor t

5.0

Compute DLvariances

Employeemaster data

Job timetickets

DL variancereport

Gl DLvariances

update

6.0

Closemanufacturing

orders

Final completedmove ticket

GL cost of good scompleted update

(debit FG, credit WIP)

FG master data

General lemaster da

v

GL MOHvariances

update

GL standardcosts update

Standard costmaster data

Generalledger

process

Productionwork

centers

Work in procesinventory

(Actual hour lypay rates)

Productionwork

centers

Standard co stmaster data

Work in processinventory data

Standard cmaster da

Generalledger

process

Variousmanagers

Purchasingprocess

FIGURE SM-15.9 Problem 15-7, part b solution—level 0 DFD


18/22


1.0Record

RM code

Inventoryprocess

WIP invent orydata

RM issue

notice

2.0Distribute

manufacturinglabor

Employeemaster data

Productionwork

centers

Generalledger

process

Job timetickets

4.0Report

WIP costsincurred

GL actualcosts update

Indirect labor costs

3.0 App ly M O

Budgetsmaster data

5.0Close manu-

facturing ordersand compute

unit costs

Inventoryprocess

Jobscompleted

notice

Generalledger

process

GL cost of goodscompleted update

Productionwork

centersFinal completed

move ticket

NOTES:a - Actual pay ratesb - DL hours and cos tc - DL hour sd - Predeter mined overh ead ratese - Applied MOHf - Actu al costs (RM, DL, applie d MOH)

KEY:DL = Dire ct labo r MOH = Manufacturing ov erheadRM = Raw materialsWIP = Work in p roce ss

a

b c

e

f

d



19/22


P15-9 a. ANS. The following assumptions were made in solving part a:

(1) All variances are unfavorable (i.e., actual costs exceed standard), resulting indebits to the variance accounts. If, on the other hand, actual costs were lessthan standard costs, the variances would be favorable and would be recorded by credits to the variance accounts.

(2) The RM price variance is recorded when the materials are purchased .Therefore, the RM inventory account is carried at standard prices; and entry 2

reflects only the RM quantity (usage) variance.

(3) The entry to pay the factory workers debited the Payroll Clearing account with

the actual gross pay (actual hours worked times actual rates per hour).

(4) The MOH Control account is debited with actual MOH incurred. The

company uses a two-variance method for overhead and records thosevariances once a month (see entry 4). If, instead, the company used three

variances for overhead, the MOH budget variance in entry 4 would beanalyzed into its spending and efficiency variance components; the capacityvariance would be the same as in entry 4.

Debit Credit

1. GL standard costs applied update:

a. WIP inventory (SQ*SP)

RM inventory (SQ*SP)

b. WIP inventory (SH*SR)

Payroll clearing account (SH*SR)

c. WIP inventory (SQ*SR)

MOH control account (SQ*SR)

2. GL RM variances update: (see notes 1 and 2 above)

RM quantity (usage) variance (Note A)

RM inventory (Note A)

3. GL DL variances update: (see the preceding Notes 1 and 2)

DL rate variance (Note B)

DL efficiency variance (Note C)

Payroll clearing account XXXX

4. GL MOH variances update: (see the preceding Notes 1 and 2)

MOH budget variance (Note D)

MOH capacity (volume) variance (Note E)

MOH control account XXXX

5. GL cost of goods completed update:

FG inventory (Note F)

WIP inventory (Note F)


20/22


Notes:

A - (AQ-SQ)*SP.

B - (AR-SR)*AH.

C - (AH-SH)*SR.

D - MOH incurred minus the standard budget allowed for output actually achieved.

E - The standard budget allowed for output actually achieved minus the MOH charged to WIP inentry 1 c.

F - Quantity completed at standard cost to produce.

Key:

DL = Direct labor MOH = Manufacturing overhead

RM = Raw materials WIP = Work in process

FG = Finished goods

AQ = Actual quantity SQ = Standard quantity

AP = Actual price per unit of RM SP = Standard price per unit of RM

AH = Actual DL hours SH = Standard DL hours

AR = Actual pay rate per hour SR = Standard pay rate per hour

b. ANS. In addition to the following solution, see the assumptions in part a previously andthe Key in the solution to part a.

(1) The following entry would be made to record the purchase of RM:

Debit Credit

RM inventory (AQ*SP)

RM purchase price variance (NOTE 1)

Accounts payable (AQ*AP)

(2) The following pair of entries would be made to record the sale of goods and related cost ofgoods sold:

Debit Credit

Accounts receivable XXXX

Sales XXXX

Cost of goods sold (NOTE 2)FG inventory (NOTE 2)


21/22


(3) Annually, the variance accounts would be closed to cost of goods sold ( Note 3) through thefollowing entry:

Debit Credit

Cost of goods sold XXXX

RM purchase price variance XXXX

RM quantity (usage) variance XXXX

DL rate variance XXXX

DL efficiency variance XXXX

MOH budget variance XXXX

MOH capacity (volume) variance XXXX

Notes:

1 - (AP-SP)*AQ.

2 - For standard cost of goods sold.

3 - Alternatively, the variance accounts might be allocated to inventory accounts and cost ofgoods sold.

P15-10 ANS. The analysis should be structured to address the three areas of concern:effectiveness of operations, efficiency of operations, and resource securityobjectives. First, recognize that effectiveness will be hampered by increased risk

of stock outs, a limited capability to work in a just-in-time environment, and theincreased difficulty of identifying other warehouses that may have required goods.

Efficiency will also be hampered as stock reordering becomes more laborintensive. Physical security is less of a concern other than the risk of not

recognizing at an early stage problems with theft and/or spoilage.

As such, the focus of revised control plans should be on controls that enhanceefficiency and effectiveness. These control plans could include a broad range of

approaches but, at a minimum, should address issues related to maintainingsufficient short periods between counts for the records to be effective in

supporting the inventory ordering and distribution process. Efficiency issuesshould be sure to address the means by which counts can be taken at a minimum

cost and at reasonable intervals so as not to exceed necessary costs but also toassure adequate maintenance of stock levels.

P15-11 ANS. a. The main concepts conveyed by lean manufacturing include the following:

• Perfect first-time quality

• Waste minimization

• Continuous improvement

• Pull processing

• Flexibility


22/22


This philosophy of lean manufacturing obviously overlaps with the integrated production process in terms of the shared goals to reduce waste, continuously

improve the production process by collecting feedback and information from all points in the process, and to promote flexibility, for instance, by implementing

flexible manufacturing systems in the case of the IPP. However, lean

manufacturing does emphasize a level of quality and customer-demand oriented pull processing that is not so strongly emphasized in the modern IPP.

b. Many of these publications argue that traditional cost accounting reports were

developed to present an accurate view of the company to outsiders andweren’t designed to help managers run their operations better. Well designed

accounting systems should mitigate that concern. There are many conceptual parallels between the current trends in cost accounting and lean accounting:

• Both advocate categorizing costs in a cellular fashion. Lean accounting

principles further recommend companies organize them by value stream,which includes everything an entity does in creating value for a customer

that it can reasonably associate with a product or product line.• The trend in cost accounting today is toward the reduction of wastes. The

same can be said for lean accounting. Inventory valuation changes underlean accounting, however. Because of the focus on producing only to meet

customer demand, inventories tend to be much lower than in traditionalmanufacturing operations.

P15-12 ANS. The answers to this problem will vary widely based on the companies selected.

We anticipate the student solutions to include many factors, but at some level,their discussion should include some of the key characteristics of successful

global companies, identified early in the chapter. These include the following:

• Improved internal business processes in the areas of customers, products, and

supply chains

• Better use of technology to increase integration within and between these

three areas (customers, products, and supply chains)

• Better general capabilities in the areas of collaboration, flexibility, visibility,and technology

P15-13 ANS. The answer will vary based on the company selected, although each studentshould address the points provided in the text of the question.

Geli Ch15 SMsa

Documents

Transcript of Geli Ch15 SMsa