Management accounting PDF

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Question 1

Total variable cost for _____units using the cumulative average time learning curve is lower than the incremental unit time learning curve. This is because for the incremental method, the direct manufacturing labour hours to make additional unit decline slowly compare to the cumulative average method with the same percentage_____ used for both. In the incremental method, when units are doubled, only the last unit produced has a cost of the 85% of initial cost but for the cumulative average method, all the average cost of all units produced cost 85% of the initial cots. Learning Curve The learning curve measures how the labours hours decrease when there is present of learning effect. This is because when labour perform repetitive work overtime, they become more efficient as they are learning. However, the learning effect will stop at one point as there will be no more learning take place. This model shows that the cumulative average time per unit produce falls as constant percentage whenever production doubles. Limitations of learning curve The limitations of learning curve is that it assumes the employees are motivates but reality is that employees may not keep up with the learning schedule. Besides that, there can be a change in production method which will affect the labour’s learning rate. It also assumes there is constant production as disruption may impact the learning rate. Lastly, there may be difficulty to obtain data based on learning effect computation.

Definition of cumulative learning model and incremental unit time The incremental unit time learning model is the reduction of the incremental time need to produce the last unit by constant percentage whenever the production double for the cumulative quantity unit. The cumulative average time learning model is the reduction of the cumulative average time per unit by constant percentage each time the production double for the cumulative quantity unit.

JIT AND EOQ JIT gives the lowest carrying cost, reduce overall cost, improve quality and processes. JIT allows frequent production but in small batches and more flexibility EOQ provides lower overall cost but can limit production to ______eg: once a month which may lead rise in problem if there is change in demand as managers will be unable to act quickly. Advantage of JIT The advantage of JIT is that is able to meet customers demand as production is made base on demand (demand pull approach). Next, it can free up capital as lower inventory is stored thus, lower carrying cost. It also improve product quality as JIT tries to avoid any rework and waste in production. Disadvtg of JIT The disadvantage of JIT is that delay in production may arise if a department or a supplier have a slight delay or if there is any kind of error. Next, if there is a seasonality or sudden rise in demand will cause rush in production and unable to adapt. Organization may have problem if the vendors or suppliers does not prioritize or coordinate with them in timely manner. JIT Work in environment JIT functions well if the products and the business characteristics is that is has fixed build of materials and few products line such as in the car manufacturing industry. Besides that, the business must also have a good vendor base where their vendors are dedicates to meet their requirement in timely manner and are within close proximity to save time in delivering the related materials. Furthermore, the business must be able to ramp up their production volume, meaning they must have good machines and equipment. Lastly, the product must have a constant demand and not fighting with the seasonality.

Theory of Constraint Constraint is anything in the organization that limits it from achieving its goals or moving forward. Constraint is also known as bottleneck that need to be managed to increase throughput while reducing inventory and operating expenses. A system productivity is important and not the individual department’s productivity. There is 5 steps to manage the constraint. 1. Organization need to identify the system constraint as it limit the system’s production flow. 2. Exploit the constraint by maximizing the capacity of the constraint. 3. Subordinate the non constraint to the constraint base on decision made when exploiting constraint. 4. Elevate the system’s constraint. The constraint need to be remove by other alternatives such as replacing it with a faster machine or use other machines. 5. Repeating step 1 when constraint has been solved. The steps are repeated for a new constraint.

Definition Throughput is the rate of the organization generating money through sales Inventory is all the money invested to produce an organization’s product Operating expenses is all money spend to convert inventory through throughput such as the direct labour.

Theory of Constraint and Product Strategy Product strategy identify the product to be produce for company’s targeted market to sell their product and estimate the profits. Theory of constraint (TOC) is related to product strategy as it facilitate production of the product. TOC also identify the process that needs instant additional resources to produce the products as per organization strategy. Finally, TOC ensure efficient use of existing capacity. Able to meet market demand Not able to meet market demand for product ____. To make more product X and Y the company can reduce producing product Z. Thus the market demand of product Z is subordinate with the product Y and X potential profit. What the company can do Produce more Work in Progress goods in front of Machine 2 to allow buffering in case where machine 1 face problem. This allow machine 2 to continue operating for production.

Highest TAR is more profitable TPAR less than 1 meaning not profitable This mean that the rate to generate throughput for product 1 and 2 a is lesser than the rate of the fixed cost incurred. Thus production of product 1 n 2 is not justifiable....