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CHAPTER 12
QUALTIY-BASED COSTING SYSTEMS AND RELATED
MANAGEMENT ACCOUNTING TECHNIQUES
[Problem 1]
1.
Incremental income from released inventory balance P400,000 x 15% P60,000
Avoided insrance costs P!0,000 x 60% 4!,000
"b#lease income !,000 x $5% x P%.50 15,000
Incremental overtime costs $,500 x P5.60 &4%,000'
(ost contribtion mar)in *,!00 x &P%% + P,.50 + P%.50' &*!,000'
-et cas. savin)s sin) /I0 P4*,000
%. 1actors to be considered before ado2tin) a /I0 2ro)ram
a. 3nconditional s22ort of t.e to2 mana)ement.
b. 4eliability of t.e internal bsiness 2rocesses sc. as em2loyee s5ills,
mac.ine readiness and seflness, and 2lant and o2erations layot.
c. 4eliability of t.e s22liers.
d. 6ecision to continosly im2rove t.e entire 2rodction 2rocess.
e. Increase in s.are.olders7 vale.
[Problem %8
1.
Incremental income from released inventory fnds P600,000 x %0% P1%0,000
(ost 9:
;antity lost %0,000
< 39:
3"P P1%
3=>" P10.! : ? ,00,000' &4.50'
3=@ P,00,000 ? P,00,000 &1.00' P 6.50 &1*0,000'
Incremental overtime costs &40,000'
"avin)s from rental 60,000
4ental income from released Aare.ose s2ace P1.50 x 1%,000x *?4 1*,500
"avin)s from insrance and 2ro2erty tax 14,000
-et savin)s from /I0 system P *$,500
%. a. "22ort of mana)ement.
b. 6edication to Bality#based environment.
c. Availability of resorces.
d. 3nderstandin) and 2artici2ation of s22liers and cstomers in t.e
Bality#based nderta5in).
[Problem *8
1. (earnin) crve rate C ,0%
Avera)e 6(9?nit &%40 nits' C P60,000 x ,0% x ,0% x ,0% C P4*,$40
%. 6: P60,000 x %40 nits P14,400,000
6( P4*,$40 x %40 nits 10,4,$,600
=DE P10,4,$,600 x 60% 6,%,!,560
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0otal var mf). costs P*1,1,6,160
*. 6: P 60,000
6( P4*,$40 x ,0% *,,*66
=DE P*,,*66 x 60% %*,6%0
0otal var mf). costs, additional
eBi2ment beyond t.e %40#nit level 1%%,,60
x 9ost F :ar52 rate 1%5%
3nit sales 2rice P15*,$**
[Problem 4]
1. "tandard 6( cost for t.e first ! lots
! x ,0 x P, P6,4!0
%. 1actors to be considered in establis.in) t.e 6( standards for eac. nit of
ot2t 2rodced beyond t.e first ! lotsG
a. 0.e effect of total and avera)e 6(E if !0% learnin) crve ta5es into
effect.
b. Pro2er, timely, and 2recise 2rodction sc.edlin) of 2rc.asin) and
assemblin) of 2rc.ased com2onents.
c. Availability of mac.ines, eBi2ments, and tools needed in t.e
2rodction 2rocess.
d. 9ommnicated ex2ectations to 2rodction 2ersonnel as to t.eir
2rodctivity.
[Problem 5]
-o. of brid)es Avera)e Aee5s 2er brid)e
1 100
% &100 x !0%' !0
4 &!0 x !0%' 64
! &64 x !0%' 51.%
It Aold ta5e t.e com2any ! brid)es to attain an efficiency rate of 51.% Aee5s
&e), after less t.an a year' constrction 2eriod eac. brid)e.
[Problem 6]
1. a. DE 4ates
Traditional OH
Rat!" DE 4ates
:aterial#related &P1.5 : x 40%' ? &P!0,000 F P*00,000 F
P%,0%0,000'
%5%
(abor#related &P1.5 : x 60%' ? P40,000 F P100,000 F P660,000' 11%.5%
ABC OH Rat!"
:aterial#related &P1.5 : x 40%' ? 6.5 P,%,*0$.6,
(abor#related &P1.5 : x 60%' ? , P100,000
b. 3nit costs
Absor2tion 9ostin) AH9ostin)
Al2.a Heta Al2.a Heta
6: P!0,000 ? 5,000 P16.00 P16.00
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P*00,000 ? 10,000 P*0.00 P*0.00
6( P40,000 ? 5,000 !.00 !.00
P100,000 ? 10,000 10.00 10.00
=DE &6: related'
0raditional &P!0,000 x %5%' ? 5,000 4.00
&P*00,000 x %5%' ? 10,000 $.50
AH9 &P,%,*0$.6, x 4' ? 5,000 $*.!5
&P,%,*0$.6, x1' ? 10,000 ,.%*
=DE &6(#related'
0raditional &P40,000 x 11%.5%' ? 5,000 ,.00
&P100,000 x11%.5%' ? 10,000 11.%5
AH9 &P100,000 x 6' ? 5,000 1%0.00
&P100,000 x 1' ? 10,000 10.00
3nit variable costs P*$.00 P%**.!5 P4%.$5 P5,.%*
%. :aintain or not to maintain 2rodction and sales of 2rodcts
Al2.a Heta
3nit sales 2rice P$5.00 P,5.00
3nit var costs # AH9 4%.$5 5,.%*
39: P*%.%5 P*5.$$
9:4 4*% *!%
Henc.mar5 9:4 40% 40%
Advise maintain -ot to maintain
[Problem $]
a.
4etrn 2er
factory .or
&"ales + 6: 9osts' ? 3sa)e of bottlenec5 resorce
&P6 + P*' ? 0.$5
P4 2er
.or
9ost 2er factory
.or
0otal factory costs ? Hottlenec5 resorce .ors available
P500 ? %00
P%.50
2er .or
0.ro).2t
accontin) ratio
4etrn 2er factory .or ? 9ost 2er factory .or
P4 ? P%.50 1.6 G 1
b. 0.ro).2t accontin) is an a22roac. t.at concentrates attention on time
s2ent in 2rodction or service facilities. 1or exam2le, costs &ot.er t.an direct
materials' may be c.ar)ed to 2rodcts in 2ro2ortion to t.e time t.at t.ose
2rodcts s2end in a Ibottlenec5 facilityJ. 0.e 2erformance of 2rodcts can be
ran5ed accordin) to t.e sales revene less direct materials costs t.at t.ey
)enerate 2er .or in t.e bottlenec5 facility.
c. 9ons2icos develo2ments in t.e bsiness environment .ave been t.e
increase in 2rodct diversity and t.e s.ortenin) of 2rodct life cycle.
Associated Ait. t.is .as been t.e re2lacement of Imass 2rodctionsJ by
Iflexible manfactrin)J. It .as been claimed t.at t.e costs of t.e 2rodct
are noA li5ely to be determined at t.e otset of its life cycle. 9onseBently,
re2ortin) on costs on any )iven 2eriod may not be very meanin)fl. 0.e life
cycle a22roac. to costin) is to re2ort on costs incrred on eac. 2rodct over
t.e A.ole corse of its life.
[Problem !]
0i2 6o not be carried aAay Ait. t.e extra ca2acity available. 4emember t.at t.e
ot2t may be constrained by t.e Aee5ly demand.
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1
A
Key sorce mac.ine L time
0ime on 5ey resorce 40 ? *0 1.**** .r.?nit
4etrn 2er factory .or &P%,000 + P600' ? 1.*** P1,050
9osts 2er factory .or [&P1*,500 F
&P450,000?4!'] ? 40
P5$1.!!
0.ro).2t accontin)
ratio
P1,050 ? P5$1.!! 1.!4
b. 0.e reliability of mac.ine < is [&160 + 1$.5' x 100] ? 160 or !,%.
0.e existin) ot2t ca2acities 2er Aee5 areG
:ac.ine < 40
:ac.ine M 5%
:ac.ine L *0
0.e ot2t may be increased to *6 if mac.ine 1 re2laces mac.ine L or to 40
&mac.ine < limitin)' if mac.ine > is 2rc.ased or to 45 &e), 1!0 ? 4' if
mac.ine < is over.aled. 0.e ot2t may also be constrained by demand.
Prodction
:ont.
Present
:ac.inery
:ac.ine
1
:ac.ine
>
:ac.ine
> and
over.al
/ 1%0 1%0 1%0 1%0
1 1%0 1%0 1%0 1%0
: 1%0 1*% 1*% 1*%
A 1%0 144 144 144
: 1%0 144 156 156
/ 1%0 144 160 1$6
/ 1%0 144 160 1!0
A 1%0 144 160 1!0
" 1%0 144 160 16!
D 1%0 144 160 160
- 1%0 1*% 1*% 1*%
6 1%0 1%0 1%0 1%0
1,440 1,6*% 1,$%4 1,$!!
Additional nit eac.
year
1,% %!4 *4!
"ellin) 2rice P%,000
# :aterials 600
=ale added 2er nit P1,%00
&in t.osand 2esos' :ac.ine 1 :ac.ine > :ac.ine >
and over.al
Additional vale added %6!.! *,$.6 40$.%
# Additional costs 1%0.0 %16.0 %16.0
-et )ain eac. year 14!.! 1!1.6 %$1.%
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9as. floAs 6iscont
factor
:ac.ine 1 :ac.ine > :ac.ine >
and over.al
Mear 0
:ac.ine cost 1 &**0,000' &550,000' &550,000'
Dver.al 1 &100,000'
Mears 1#4
P14!,!00 *.1$0 4$1,0,6
P1!1,600 *.1$0 5$5,6$%
P%$1,%00 *.1$0 !5,,$04
-P= 141,6,6 %5,66$% %0,,$04
0.e combination of mac.ine > and over.alin) mac.ine < .as t.e )reatest
-P= and s.old be nderta5en. 0.e loAest cost o2tion to over.al mac.ine <
is not Aort.A.ile on its oAn, as mac.ine < is not 2resently limitin) ot2t.
If t.e over.al is not 2ossible for any reason t.en mac.ine 1 s.old be
2rc.ased N. 0.e analysis is very sensitive to t.e ot2t fi)res, t.at is,
sales demand and 2rodction ca2acity sed.
1or t.e combination mac.ine > and over.al, an annal redction of 4% in
ot2t from 4,$!! to 1,$16.50 Aold render t.e 2ro2osal Bite neconomic.
@xtra nits %$6.5
@xtra added vale P*!$,100
-et )ain eac. year P1$1,100
-P= &P1$1,100 x *.1$0' + P650,000 C &P10$,600'
A 10% redction in sellin) 2rice to P1,!00 Aold be reBired to render t.e
2ro2osal neconomic, t.at isG
@xtra added vale P4!$,%00 x 1,%00?1,400 P41$,600
-et )ain eac. year P%01,600
-P= P%01,600 x *.1$0 + P650,000 &P10,,%!'
[Problem ,]