Many companies recognize that their cost systems are inadequate for today's powerful global competition. Managers in companies selling multiple products are making important product decisions based on distorted cost information, as most cost systems designed in the past focused on inventory valuation. In order to elevate the level of management information, it has been suggested that companies should have as many as three cost systems for (1) inventory valuation, (2) management control of operations, and (3) an activity-based costing system for decision-making. A. Discuss why the traditional cost system, developed to value inventory, distorts product cost information. B. Identify the purpose and characteristics of each of the following systems: 1. Inventory valuation. 2. Management control of operations. 3. Activity-based costing. C. Describe the benefits that management can expect from activity-based costing. D. List the steps that a company, using a traditional cost system, would take to implement activity-based costing.

Many companies recognize that their cost systems are inadequate for today's powerful global competition. Managers in companies selling multiple products are making important product decisions based on distorted cost information, as most cost systems designed in the past focused on inventory valuation. In order to elevate the level of management information, it has been suggested that companies should have as many as three cost systems for (1) inventory valuation, (2) management control of operations, and (3) an activity-based costing system for decision-making. A. Discuss why the traditional cost system, developed to value inventory, distorts product cost information. B. Identify the purpose and characteristics of each of the following systems: 1. Inventory valuation. 2. Management control of operations. 3. Activity-based costing. C. Describe the benefits that management can expect from activity-based costing. D. List the steps that a company, using a traditional cost system, would take to implement activity-based costing.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter11: Strategic Cost Management

Section: Chapter Questions

Problem 9E

See similar textbooks

Similar questions

1. There is a significant decrease in unit sales. Which of the following would be the LEAST likely action among the different departments? a. Consult with marketing and sales to determine whether there are changes in customer preferences. b. Review changes in technology and determine whether there is obsolescense in the products and the production process c. Inquire with the after-sales service whether there are indications of high level of unresolved customer complaints. d. Communicate with inbound logistics and determine whether raw materials contributed to increase in product failure. 2. The internal cost analysis process involves the following in what order? (A) Identify the links between the process and check for opportunities to lower costs, (B) Identify the value creating processes and the cost of each, (C) Identify the cost driver for each process and the cost per activity level. a. A, B, Cb. C, A, Bc. B, A, Cd. B, C, A 3. This stage of…
No single system can adequately answer the demands made by diverse functions of cost systems. While companies can use one method to capture all their detailed transactions data, the processing of this information for diverse purposes and audiences demands separate, customized development. Companies that try to satisfy all the needs for cost information with a single system have discovered they can’t perform important managerial functions adequately. Moreover, systems that work well for one company may fail in a different environment. Each company has to design methods that make sense for its particular products and processes. Of course, an argument for expanding the number of cost systems conflicts with a strongly ingrained financial culture to have only one measurement system for everyone. Describe the costs and benefits of having a single measurement system.
Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing operating income, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making situation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful. All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs. The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement and the Variable Statement, he notices that the operating income is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company’s capacity for manufacturing, in the coming year. He reasons that this will boost operating income and satisfy…
Manufacturing Decisions Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing operating income, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making situation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful. All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs. The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement and the Variable Statement, he notices that the operating income is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company's capacity for manufacturing, in the coming year. He reasons that this will boost…
Manufacturing Decisions Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing operating income, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making situation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful. All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs. The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement and the Variable Statement, he notices that the operating income is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company’s capacity for manufacturing, in the coming year. He reasons that this will boost…
When a company is decentralized, top management will have little time to focus on long-term strategy because they will be too focused on managing day to day operations. True O False Select all of the below that are advantages of decentralization. Decentralization allows companies to duplicate costs. Decentralization provides training. Decentralization improves customer and supplier relations. Decentralization improves motivation and retention.
Under EOQ approaches, order costs can be minimised by placing large, infrequent orders for inventory. However, under JIT, inventory- related costs are reduced by ordering frequently and in small quantities. Can you explain why both of these statements are correct? Explain why some organisations onsider it important to measure customer retention and customer satisfaction.
Which one of the following would be considered a financial cost of organizational control? The cost of failing to recognize opportunities to increase sales due to data loss. The cost of having financial statements audited by an independent accounting firm. The cost of an upset customer who leaves the store because it took too long for a manager to approve a price adjustment for a customer farther up in the line.
Shatta movement LTD produces a single product. The company's directors want to explore new markets, and they require an accurate analysis of the firm's cost structure for both forecasting and pricing purpose. An attemp to provide this analysis from the aggregation of individual cost has produced a poor correspondence between actual and predicted cost. You are an accountant employee by Shatta Movement Ltd, and you have been asked to provide a statistical approach to the problem. The financial director has given you the following data: Period output (unit) average unit cost (GHS) July August September October November December 9,000 14,000 11,000 8,000 6,000 12,000 12.8 13 11.4 12 13 11.7 You obtain the following further information: 1. The cost from which the averages have been computed consist of the firm's entire cost for the relevant month. 2. Fixed coat can be assumed to be unaffected by seasonal factors except for harmattan heating. In July and August a…
An inventory system that organizations use to increase efficiency and decrease waste is ______________________________. corporate social responsibility just-in-time manufacturing total quality management Lean Six Sigma
These are measures not found in the chart of accounts, such as customer satisfaction scores or product quality measures. A. Quality measures B. Non-financial measures C. Financial Measures D. Balanced Scorecard A manager would like to see reduction of the following operational measures, except: A. Spoilage B. Number of customer complaints C. Queue time D. Manufacturing Efficiency
Identify the major problems in this situation and explain how they impact the organization. You will need to consider both behavioral and analytical factors. Specifically, how might managerial accounting concepts, tools, or techniques be applied to help resolve this dilemma? What are possible consequences of applying the same to this dilemma? Briefly explain Orange Electronics has been experiencing declining profit margins and has been looking for ways to increase operating income. It cannot raise selling prices for fear of losing business to its competitors. It must either cut costs or improve productivity. The company uses a standard cost system to evaluate the performance of the soldering department. It investigates all unfavorable variances at the end of the month. The soldering department rarely completes the operations in less time than the standard allows (which would result in a favorable variance). In most months, the variance is zero or slightly unfavorable. Reasoning that…