Concept explainers
As discussed in the chapter, the principles underlying activity-based costing have evolved into the broader approach known as activity-based management. One of the common practices of activity-based management is to identify all business activities, classify each activity as either a value-added or a non-value-added activity, and then try to reduce or eliminate the time spent on non-value-added activities. Consider the implications of applying this same approach to your everyday life, at work and at school. How do you spend your time each day? How much of your day is spent on activities that help you accomplish your objectives, and how much of your day is spent on activities that do not add value?
Many “self-help” books and websites offer suggestions on how to improve your time management. Should you minimize the “non-value-added” hours in your life by adopting the methods suggested by these sources? The basic arguments for and against are as follows.
YES: There are a limited number of hours in a day. You should try to maximize your chances of achieving your goals by eliminating the time that you waste.
NO: Life is about more than working yourself to death. Being an efficiency expert doesn't guarantee that you will be happy. Schedules and daily planners are too constraining.
Instructions
Write a response indicating your position regarding this situation. Provide support for your view.
Want to see the full answer?
Check out a sample textbook solutionChapter 4 Solutions
MANAGERIAL ACCT.-WILEYPLUS BLKBRD PKG
- Lean manufacturing is characterized by all but one of the following: a. Employee empowerment b. Total quality management c. Inventories of goods awaiting further processing or consumption d. Elimination of wastearrow_forwardIn a team of two or three students, interview the manager/owner of a local business. In this interview, ask the manager/owner the following questions: A. Does the business collect and use cost information to make decisions? B. Does it have a specialist in cost estimation who works with this cost data? If not, who is responsible for the collection of cost information? Be as specific as possible. C. What type of cost information does the business collect and how is each type of information used? D. How important does the owner/manager believe cost information is to the success of the business? Then, write a report to the instructor summarizing the results of the interview. Content of the memo must include date of the interview, the name and title of the person interviewed, name and location of the business, type of business (service, merchandising, manufacturing) and brief description of the goods/services provided by the business, and responses to questions A-D.arrow_forwardRandy Harris, controller, has been given the charge to implement an advanced cost management system. As part of this process, he needs to identify activity drivers for the activities of the firm. During the past four months, Randy has spent considerable effort identifying activities, their associated costs, and possible drivers for the activities costs. Initially, Randy made his selections based on his own judgment using his experience and input from employees who perform the activities. Later, he used regression analysis to confirm his judgment. Randy prefers to use one driver per activity, provided that an R2 of at least 80 percent can be produced. Otherwise, multiple drivers will be used, based on evidence provided by multiple regression analysis. For example, the activity of inspecting finished goods produced an R2 of less than 80 percent for any single activity driver. Randy believes, however, that a satisfactory cost formula can be developed using two activity drivers: the number of batches and the number of inspection hours. Data collected for a 14-month period are as follows: Required: 1. Calculate the cost formula for inspection costs using the two drivers, inspection hours and number of batches. Are both activity drivers useful? What does the R2 indicate about the formula? 2. Using the formula developed in Requirement 1, calculate the inspection cost when 300 inspection hours are used and 30 batches are produced. Prepare a 90 percent confidence interval for this prediction.arrow_forward
- Felipes Restaurant and Pie Shop needs help defining the costs for his business. He also wants to know which costs are relevant or irrelevant to his decision. Identify each cost as relevant or irrelevant. Then identify the type of cost (sunk. fixed, variable, or opportunity).arrow_forwardTom Young, vice president of Dunn Company (a producer of plastic products), has been supervising the implementation of an activity-based cost management system. One of Toms objectives is to improve process efficiency by improving the activities that define the processes. To illustrate the potential of the new system to the president, Tom has decided to focus on two processes: production and customer service. Within each process, one activity will be selected for improvement: molding for production and sustaining engineering for customer service. (Sustaining engineers are responsible for redesigning products based on customer needs and feedback.) Value-added standards are identified for each activity. For molding, the value-added standard calls for nine pounds per mold. (Although the products differ in shape and function, their size, as measured by weight, is uniform.) The value-added standard is based on the elimination of all waste due to defective molds (materials is by far the major cost for the molding activity). The standard price for molding is 15 per pound. For sustaining engineering, the standard is 60 percent of current practical activity capacity. This standard is based on the fact that about 40 percent of the complaints have to do with design features that could have been avoided or anticipated by the company. Current practical capacity (the first year) is defined by the following requirements: 18,000 engineering hours for each product group that has been on the market or in development for five years or less, and 7,200 hours per product group of more than five years. Four product groups have less than five years experience, and 10 product groups have more. There are 72 engineers, each paid a salary of 70,000. Each engineer can provide 2,000 hours of service per year. There are no other significant costs for the engineering activity. For the first year, actual pounds used for molding were 25 percent above the level called for by the value-added standard; engineering usage was 138,000 hours. There were 240,000 units of output produced. Tom and the operational managers have selected some improvement measures that promise to reduce non-value-added activity usage by 30 percent in the second year. Selected actual results achieved for the second year are as follows: The actual prices paid per pound and per engineering hour are identical to the standard or budgeted prices. Required: 1. For the first year, calculate the non-value-added usage and costs for molding and sustaining engineering. Also, calculate the cost of unused capacity for the engineering activity. 2. Using the targeted reduction, establish kaizen standards for molding and engineering (for the second year). 3. Using the kaizen standards prepared in Requirement 2, compute the second-year usage variances, expressed in both physical and financial measures, for molding and engineering. (For engineering, explain why it is necessary to compare actual resource usage with the kaizen standard.) Comment on the companys ability to achieve its targeted reductions. In particular, discuss what measures the company must take to capture any realized reductions in resource usage.arrow_forwardInterview questions are asked to determine a. what activities are being performed. b. who performs the activities. c. the relative amount of time spent on each activity by individual workers. d. possible activity drivers for assigning costs to products. e. All of these.arrow_forward
- Walsh & Coggins, a professional accounting firm, collects cost information about the services they provide to their clients. Describe the types of cost data they would collect and explain the importance of analyzing this cost data.arrow_forwardWhich of the following product situations is better suited to job order costing than to process costing? A. Each product batch is exactly the same as the prior batch. B. The costs are easily traced to a specific product. C. Costs are accumulated by department. D. The value of work in process is based on assigning standard costs.arrow_forwardWhy would a business that uses traditional costing systems consider implementing activity-based costing? Discuss the following in your answer: Problems with traditional costing systems in a modern manufacturing environment. Whether the benefits of activity-based costing always outweigh the costs.arrow_forward
- It is your first day at a new job and you talk about the themes of cost system design. One of your new colleagues asks, “If different cost information is used for different purposes, does that mean we do not know what something costs? I thought that was what a cost system reported.” How would you respond?arrow_forwardCompanies that produce a variety of products need a costing system that allocates costs based on the varying resource demands of each product. Activity-based costing systems identify activities as the cost objects. An activity-based system (ABC) identifies activities as fundamental cost objects. Costs are then assigned to the activities and allocated to the individual products. Unlike simple systems, ABC systems calculate costs of individual activities to cost products. What is activity-based management and how can it be used to improve the profitability of a company. In this discussion, be sure to compare and contrast your understanding of activity-based costing. Identify a simple product and explain the different cost drivers used in making that product.arrow_forwardIf activity-based costing is implemented in an organization without any other changes being implemented, total overhead costs will Group of answer choices remain constant and simply be spread over products differently. be increased because of the need for additional people to gather information on cost drivers and cost pools. be reduced because organizational costs will not be assigned to products or services. be reduced because of the elimination of non-value-added activities.arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College