Question : ESSAY. Write your answer in the space provided or a separate : 1196171

 

ESSAY.

Write your answer in the space provided or on a separate sheet of paper. 88)

The executive vice president of Robotics, Inc., is concerned because the cost of materials has not been in

line with the budget for several periods, even after implementing an EOQ model. The company has the

normal direct material variance computations of price and efficiency at the end of each month. The price

variance of the direct materials used is usually near expectations. The vice president does not understand

how the budget differences are always larger than the material price variances.

 

Required:

What explanation can you give for the evaluation problems presented?

 

 

89)

The manufacturing manager of New Technology Company is concerned about the company’s newest plant. When the plant began operations three years ago it had the best of everything. It had modern equipment, well-trained employees, engineered work and assembly stations and a controlled environment. During the first two years the evaluation results were very good with almost all cost variances being favourable. However, recently things have turned negative.

 

In recent months everything seems to be operating in a crisis management mode. Although most cost variances remain favourable, the plant’s segment contribution is declining and customers are complaining about poor quality and slow delivery. Several customers have suggested that they may take their business elsewhere if things do not improve.

 

The shop floor is in continual turmoil. In-process inventory is everywhere, production employees have difficulty finding jobs that need to be worked on, and scheduling has requested a larger computer to keep track of work in process.

 

The vice president of sales does not know where to begin with solving the customers’ problems. It seems that everyone is working very hard and the plant has the best facilities and trained employees in the industry.

 

Required:

 

What is the nature of the plant’s problems? What recommendation would you make to help improve the situation?

90)

Sudbury Ore Company mines nickel ore for production into various metal products. During recent years the company has had large fluctuations in its inventories of metal ingots. Much of the volatility of the inventory levels is due to the variability of demand by the company’s largest customers, automobile manufacturers. For large orders the company has the technology to quickly shift production from one product to another.

Required:

Explain how the company can improve its inventory control system and give the advantages of whatever you recommend.

91)

Kretzinger Company makes extensive use of financial performance reports for each of its departments. Although most departments have been reporting favourable cost variances with the company’s current inventory system, management is concerned about the overall performance of the purchasing and production departments. For example, the following information is for the purchasing of materials for a product the company has been manufacturing for several years:

 

Purchase

YearQuantity usedAverage inventoryprice variance

200140,0008,000$ 1,000 F

200260,00015,00010,000 F

200360,00020,00012,000 F

200450,00012,50020,000 U

200554,00018,0008,000 F

200658,00023,200 9,500 F

 

Required:

 

a.Compute the inventory turnover for each year. Can any conclusions be drawn for a yearly comparison of the purchase price variance and the inventory turnover?

b.Identify problems likely to be caused by evaluating purchasing only on the basis of the purchase price variance.

c.Management has been relying almost exclusively on variances for performance measurement. What recommendations can you suggest to improve the evaluation process?

92)

What is a supply chain, and what are the benefits of a supply chain analysis?

Provide an example of

these benefits.

 

93)

Backflush costing does not strictly adhere to generally accepted accounting principles. Explain why. Also,

describe the types of businesses that might use backflush costing.

 

 

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