Fifteen years ago, Bryce Stabele, together with several financial supporters, fo
ID: 2420113 • Letter: F
Question
Fifteen years ago, Bryce Stabele, together with several financial supporters, founded SA Corporation. Located in Atlanta, the company originally manufactured roller skates, but 12 years ago, on the advice of its marketing department, it switched to making skateboards. More than 4 million skateboards later, SA Corporation finds itself an industry leader in both volume and quality. To retain market share, it has decided to automate its manufacturing process. It has ordered flexible manufacturing systems for wheel assembly and board shaping. Manual operations will be retained for board decorating because some hand painting is involved. All operations will be converted to a JIT environment.
Bryce wants to know how the JIT approach will affect the company’s product costing practices and has called you in as a consultant.
2. How will the automated systems change product costing?
3. What are some cost drivers that the company should employ? In what situations should it employ them?
Explanation / Answer
Answer to 1
JIT means Just in Time approach. It is an inventory strategy that companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. In this producers are able to accurately forecast demand and allows the reduction in the number of cost elements for a product.
JIT influence on a company and its cost management system through concentration on non-value added processes, i.e. "any activity or procedure that is performed within a company that does not add value to a product"
The impact of JIT on traditional cost accounting is that the causes of costs, or cost drivers, now need to be identified for the non value-added activities so that they can be reduced or eliminated. Identification of these drivers allows the simplification of product designs, resulting in more efficient processes.
Answer to 2.
Automation refers to the use of computers and other automated machinery for the execution of business-related tasks. There are many different reasons to automate.These include:
Increased productivity is normally the major reason for many companies desiring a competitive advantage. Automation also offers low operational variability. Variability is directly related to quality and productivity
Automated processes allows reduce production time, increase manufacturing flexibility, reduce costs, eliminate human error, or make up for a labor shortage.
Automated System allows Low Product costing through Computer-integrated manufacturing (CIM), which is the manufacturing approach of using computers to control the entire productionprocess.This integration allows individual processes to exchange information with each other and initiate actions. Through the integration of computers, manufacturing can be faster and less error-prone
Answer to 3.
Cost-drivers (the causes of costs) are activities that cause resources to be consumed. In JIT the manufacturer recieves the goods only as they are needed during production in order to reduce waste and increase efficiency.
The cost-drivers that the company should employ would be materials and human / time costs. This would lead to materials that are consumed during the production process and the labor hours that are consumed along with production.
The situations they should be employed would be any kind of manufacturing industry that wants to reduce the amount of inventory they are carrying whether that be due to carrying costs, shrinkage, waste, theft, etc.
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