Daniel Morris purchased a 42-inch plasma television, manufactured by TVCO, from a local electronics store that permits customers to return defective products within 30 days of purchase. Approximately 45 days after Daniel’s purchase, the TV began to malfunction periodically. Because Daniel could not return the TV to the local store, he turned to the warranty information and found that the warranty included picking up the approximately 100-pound TV from the owner’s home, repairing the TV, and delivering the repaired TV to the owner’s home. TVCO’s customer service process for handling warranty repairs is as follows: 1. The customer calls Customer Service (CS) to request authorization of the TV repair. 2. CS requests the customer to mail or fax the receipt, TV model number, and serial number. 3. On receipt of the information, CS locates a nearby repair shop to perform the repair. 4. CS forwards the repair request to the Warranty Department (WD) for approval. 5. On approval, WD informs CS so that CS can inform the customer and fax authorization for the repair to the approved repair shop. 6. The customer contacts the designated repair shop to arrange for the TV pickup. The repair shop picks up the TV. 7. The repair shop diagnoses the problem and orders parts. 8. On receipt of the parts, the shop repairs the TV and delivers it to the customer. 9. If the TV cannot be repaired, TVCO replaces the defective TV with a new one. Accordingly, Daniel called CS to request authorization to repair the TV and faxed the receipt, TV model number, and serial number to CS. CS located a repair shop (RS1) 30 miles from Daniel’s city of Anytown. On obtaining WD’s approval, CS faxed authorization for the repair to the approved repair shop. Daniel contacted RS1 to arrange for the TV pickup, but RS1 refused to pick up the TV, stating that Daniel’s location is too far away. After several more phone calls to CS, with wait times before talking to a CS representative ranging from 25 to 45 minutes, CS authorized another repair shop, RS2. RS2 picked up the TV, and Daniel informed RS2 that he planned to move to Othertown in two weeks and therefore hoped the TV could be repaired by then. RS2 did not look at the TV until Daniel called eight days later to check on progress. RS2 then diagnosed the problem and contacted TVCO for parts for the repair and was told that parts would not be available for several weeks. Because of his impending move to another city, Daniel requested RS2 to return the TV to him, thinking that he would get the TV repaired in Othertown. After moving to Othertown, Daniel again called CS to request authorization for the TV repair. After several phone calls with sizable wait times before talking to CS, and several miscommunications between CS and WD that led Daniel to talk to a supervisor, CS located RS3 in Othertown. However, RS3 was backlogged and would not pick up the TV for at least a week. RS3 picks up only on weekdays during regular working hours. Moreover, the technician would not look at the TV for at least 10 days after the TV arrived in the shop. Given the length of time that had now passed since Daniel’s first contact with CS, Daniel found this situation unacceptable, so he called CS and asked to talk to a supervisor. The supervisor suggested other approved stores for the repair. Daniel found RS4, which was willing to pick up the TV at a day’s notice and diagnose problems as soon as possible so that parts could be ordered. Daniel called CS to arrange for authorization, and CS promised to call back soon. After a week with no response, Daniel called CS and was told that WD refused to authorize RS4 to perform the repair because WD thought Daniel still lived in Anytown and RS4 was too far from Anytown. Daniel called the supervisor again, and after a week the supervisor arranged for authorization for RS4 to do the repair. RS4 picked up the TV; by now, more than two months had passed since Daniel first contacted CS, and RS4 could not provide a definite date for completion of the repair. However, as promised, RS4 diagnosed the problem shortly after the TV arrived in the shop and ordered the apparently appropriate part. Disappointingly, changing the part did not correct the problem. TVCO suggested that RS4 try changing another part but could not provide an estimated date of arrival for the part. After Daniel’s further phone calls, TVCO agreed to exchange the defective TV for a new one. By this time, more than three months had passed since Daniel first contacted CS. Required (a) Assuming that TVCO has a performance measurement system for CS, what measures do you think the company is using to evaluate CS performance? (b) What measures reflect what the customer is concerned about? (c) What changes in the warranty service approval process might improve the process from the customer’s perspective? (d) Compare how RS3 and RS4 have designed their repair process and explain to RS3 how it can reduce the time spent on non–value-added activities.
> What creates the need to maintain work-in process inventory? Why is work-in-process inventory likely to decrease on the implementation of group technology, just-in-time production, and quality improvement programs?
> How is a just-in-time manufacturing system different from a conventional manufacturing system?
> List three examples for each of the following quality costing categories: a. Prevention costs b. Appraisal costs c. Internal failure costs d. External failure costs.
> Quality engineering, quality training, statistical process control, and supplier certification are what kinds of quality costs?
> Describe the lean manufacturing approach.
> What is group technology?
> What is the difference between process and product layout systems?
> The theory of constraints relies on three measures: throughput contribution, investments, and operating costs. Define these three measures in the context of the theory of constraints.
> What costs and revenues are relevant in evaluating the profit impact of an increase in sales?
> What is the additional cost of replacing one unit of a product rejected at inspection and scrapped?
> What does the breakeven time (BET) metric for the product development process measure?
> What are the two general methods of information gathering and sharing when undertaking a benchmarking exercise?
> What are the three broad classes of information on which firms interested in benchmarking can focus? Describe each.
> According to the kaizen costing approach, who has the best knowledge to reduce costs? Why is this so?
> Under what condition will the cost savings due to kaizen costing not be applied to production?
> What do the terms kaizen and kaizen costing mean?
> One aspect of facilities layout for McDonald’s is that when customers come into the building, they can line up in one of several lines and wait to be served. In contrast, customers at Wendy’s are asked to stand in one line that snakes around the front of
> Ray Brown’s company, Whisper Voice Systems, is trying to increase its processing cycle efficiency (PCE). Because Ray has a very limited budget, he has been searching for a way to increase his PCE by using group technology. One of Ray&ac
> Gurland Valves Company manufactures brass valves that meet precise specification standards. All finished valves are inspected before being packaged and shipped to customers. Rejected valves are returned to the initial production stage to be melted and re
> You are a manufacturing manager faced with the decision about how to improve manufacturing operations and efficiency. You have been studying both group technology and JIT manufacturing systems. Your boss expects you to prepare a report covering the costs
> Walker Brothers Company is considering the installation of a JIT manufacturing system in the hope that it will improve the company’s overall processing cycle efficiency. Data from the traditional system and estimates for the JIT system
> Consider an organization that has empowered its employees, asking them to improve the quality, productivity, and responsiveness of their processes that involve repetitive work. This work could arise in a manufacturing setting, such as assembling cars or
> To facilitate a move toward JIT production, AB Company is considering a change in its plant layout. The plant controller, Anita Bentley, has been asked to evaluate the costs and benefits of the change in plant layout. After meeting with production and ma
> Discuss the similarities and differences between activity based costing and the theory of constraints, as well as situations in which one approach might be preferable to the other.
> Assume that you are an average student who has a desire to be one of the best students in class. Your professor suggests that you benchmark the working habits of the best student in the class. You are somewhat skeptical but decide to take on the challeng
> Your organization, located in Worthington, Ohio, is contemplating introducing kaizen costing to help with cost reduction. As someone who has an understanding of management accounting, you have been asked for your opinion. Specifically, some of your colle
> Many companies are interested in adopting a kaizen costing approach to reducing costs. However, they are not sure how their current standard costing system will fit with the kaizen costing approach. Required How do the standard costing system and the ka
> As a manager asked to benchmark another organization’s mobile web experience provided to users, on what factors would you gather information? Why?
> What are the key factors in identifying benchmarking partners? Explain why these factors are important.
> Kaizen costing is a method that many Japanese companies have found effective in reducing costs. Required (a) What are the biggest problems in using kaizen costing? (b) How can managers overcome these problems?
> What factors differentiate kaizen costing from standard costing?
> The following data have just been gathered on last year’s quality-related costs at the Ideal Company: Total sales last year were $75,000,000. Required (a) Prepare a cost-of-quality report grouping costs into prevention, appraisal, int
> In which stage of the total life cycle of a product is target costing most applicable?
> What is an investment center?
> The following information shows last year’s quality-related costs for the Madrigal Company: Total sales for the year were $120,000,000. Required (a) Prepare a cost-of-quality report grouping costs into prevention, appraisal, internal
> Managers concerned with improving quality sometimes have a difficult balancing act, given the four types of quality costs they have to manage. As a new manager, you are trying to figure out a strategy for managing $2 million of quality costs; your total
> Read “Everyone Likes to Laud Serving the Customer; Doing It Is the Problem,” by Carol Hymowitz (Wall Street Journal, February 27, 2006, p. B1). Required (a) According to the article, what measures are commonly used to evaluate customer service represent
> Of the four quality costing categories, which quality cost is the most damaging to the organization? Explain.
> Regarding the quality costing categories, how do prevention costs differ from appraisal costs? How do internal failure costs differ from external failure costs?
> How would you classify the layout of a large grocery store? Why do you think it is laid out this way? Can you think of any way to improve the layout of a conventional grocery store? Explain your reasoning. (Hint: Think about JIT, cycle time, and so on.)
> SMY Corporation produces 60,000 videophones per year. The company estimates its direct material costs for the videophone to be $300 per unit and its conversion (direct labor plus support) costs to be $400 per unit. Annual inventory carrying costs, not in
> Boris Company introduced JIT manufacturing last year and has prepared the following data to assess the benefits from the change: Inventory financing costs are 12% per year. Support costs are based on a time-driven activity-based costing analysis. Estima
> Kwik Clean handles both commercial laundry and individual customer dry cleaning. Kwik Clean’s current dry cleaning process involves emitting a pollutant into the air. In addition, the commercial laundry and dry cleaning processes produce sediments and ot
> Johnson & Johnson (www.jnj.com), a major health care and pharmaceutical firm, voluntarily recalled a number of its products in 2010 because of quality problems. These products included hip-repair implants, contact lenses, and over-the-counter medications
> For each of the four steps of the plan–do–check–act cycle, describe examples of possible uses of management accounting information.
> Some firms in the fashion industry have adopted lean or just-in-time approaches to maintain or increase their competitive advantage. Read the following articles or other resources to address the questions below: “Brand-New Bag: Louis Vuitton Tries Modern
> Woodpoint Furniture Manufacturing produces various lines of pine furniture. The plant is organized so that all similar functions are performed in one area, as shown in Exhibit 7-17. Most pieces of furniture are made in batches of 10 units. Raw materials
> Precision Systems, Inc. (PSI).1 Precision Systems, Inc. (PSI) has been in business for more than 40 years and has generally reported a positive net income. The company manufactures and sells high-technology instruments (systems). Each product line at PSI
> Rossman Instruments, Inc., is considering leasing new state-of-the-art machinery at an annual cost of $900,000. The new machinery has a fouryear expected life. It will replace existing machinery leased one year earlier at an annual lease cost of $490,000
> Why might customer retention rate be a poor measure of customer loyalty?
> What does a pricing waterfall chart depict?
> “Companies should avoid high cost-to-serve customers because they are unprofitable.” Do you agree with this statement? Explain.
> Why are nonfinancial measures alone insufficient for managing relationships with customers?
> Consider the descriptions of management accounting provided in the chapter. Discuss why the associated responsibilities are viewed as “accounting” and how people handling those responsibilities interface with other functional areas in fulfilling the stat
> What is the net promoter score and why is it recommended for use by companies?
> List and describe the five stages of a hierarchy for categorizing customer satisfaction and loyalty. Which companies that you know or deal with as a consumer create the highest form of loyalty for you?
> Provide three reasons why customer loyalty provides benefits to companies.
> “The only nonfinancial measure for customer relationships that our company should focus on is customer satisfaction.” Do you agree with this statement? Explain.
> What insights can life-cycle profitability analysis provide about customer profitability and the desirability of various customer groups?
> How might the structure of salespersons’ incentives or compensation plans contribute to unprofitable customer relationships?
> What are four broad groups of actions that managers might use to transform unprofitable customers into profitable ones?
> Provide an example of how customers may use a specific company’s resources or services very differently.
> Why must service companies, even more so than manufacturing companies, focus on customer costs and profitability?
> What is the typical shape of a graph of cumulative profits versus percentage of customers ranked from most profitable to least profitable?
> What are the two essential financial elements needed to arrive at a target cost?
> Kronecker Company, a growing mail-order clothing and accessory company, is concerned about its growing MSDA expenses. It therefore examined its customer ordering patterns for the past year and identified four different types of customers, as illustrated
> In which industries would you expect the net promoter score to have the greatest predictive power for repeat purchases and growth? The least predictive power for repeat purchases and growth?
> KEM Company has begun studying customer lifetime value for its customers and has prepared the information below for selected customers. For simplicity, management has assumed that for a given customer, the retention rate is the same every year until the
> Randolph Company’s product mix has become more diverse over the past few years. Consequently the company undertook an activity-based costing initiative to develop accurate costs for production, as well as marketing, selling, distributio
> Write an essay to explain how the 80–20 graph for sales revenues would be prepared and describe typical findings with respect to proportions of products and customers generating percentages of sales. Also, describe how a whale curve is prepared and typic
> Hampstead Company’s order entry department has 20 order entry operators. The cost associated with these 20 operators (salaries, fringe benefits, and supervision, as well as occupancy and equipment costs) is $873,600 per year. After taking into ac
> Saunders Company has recently become aware of the large total discounts on its orders and would like to know the impact on profit. The company computed its operating profit as follows: Required (a) Suppose Saunders could reduce its sales discounts to p
> Refer to the pricing waterfall chart in Exhibit 6-4. Required (a) What circumstances result in firms often failing to be aware of all of the discounts and allowances granted on a customer order? (b) Once a firm becomes aware of pricing waterfalls leadin
> For each of the categories below, provide a specific example of how a company might transform its breakeven or loss customers into profitable ones: a. Process improvements b. Activity-based (menu-based) pricing c. Managed customer relationships d. Discip
> Wright Company, a new systems consulting company, is concerned about the profitability of its customers during the past year. The company has prepared the following data: Required (a) Prepare a whale curve, as described in this chapter. (b) What percen
> Consider the operation of a fast-food company with hundreds of retail outlets scattered about the country. Consider the descriptions of management accounting provided in the chapter to identify management accounting information needs for the following: a
> Tetra Company’s cost system assigns MSDA expenses to customers using a rate of 33% of sales revenue. The new controller has discovered that Tetra’s customers differ greatly in their ordering patterns and interaction w
> Stan’s, a department store chain, has conducted a survey to collect data on customer satisfaction and perception of its merchandise and service. Data for responses to the question “How likely is it that you would recom
> Compute the customer lifetime value for Customer 421 based on the data below for the first six years of the customer relationship. Costs (ct) were incurred to promote customer retention to a rate of 0.8 in years 1 through 6.
> In response to how the sales incentives might be contributing to falling profits despite growing sales, Chan Company’s controller has produced the following information on last year’s sales to two customers that purcha
> Read the Wall Street Journal article “Survival Strategies: After Cost Cutting, Companies Turn toward Price Increases” by Timothy Aeppel (September 18, 2002, p. A1). The article reports “an all-out search for new ways to charge more money without raising
> Why might an organization not experience financial improvement even after using activity-based costing to identify and take action on promising opportunities for process improvements and cost reductions?
> Why do companies producing a varied and complex mix of products have higher costs than companies producing only a narrow range of products?
> “When a company produces both high volume products and low-volume products, traditional product costing systems are likely to over cost high-volume products.” Do you agree with this statement? Explain.
> Under what two conditions are volume based traditional product costing systems most likely to distort product costs? How do activity-based costing systems provide more accurate costs when these two conditions hold?
> Why are traditional volume-based cost allocation systems likely to systematically distort product costs?
> The decline in our profits has become intolerable. The severe price cutting in pumps has dropped our pre-tax margin to less than 2%, far below our historical 15% margins. Fortunately, our competitors are overlooking the opportunities for profit in flow c
> What advantages does time-driven ABC have over original activity-based costing?
> Why might individuals resist implementation of activity-based costing?
> What are some special considerations in the design of cost accounting systems for service organizations?
> Why are service organizations often ideally suited for activity-based costing?
> Why is practical capacity recommended in calculating capacity cost rates?
> How the information from an activity can based costing system guide improvements in operations and decisions about products and customers?
> What two sets of parameters must be estimated in time-driven ABC?
> How is a time-driven ABC system updated as resource costs increase or changes in operations occur?
> Riverdale Bone and Joint Surgery specializes in treating injuries related to bones and joints, as well as surgeries such as knee replacements and hip replacements. In addition to performing surgeries, Riverdale offers post-operation treatment. Riverdale
> Garber Company uses a traditional activity-based costing system to assign $600,000 of committed resource costs for customer service on the basis of the following information gathered from interviews with customer service personnel: Required (a) Compute
> For each of the following products, suggest three measures of quality: a. Television set b. University course c. Meal in an exclusive restaurant d. Carryout meal from a restaurant e. Container of milk f. Visit to the doctor g. Trip on an airplane h. Pair
> XZ Discount Brokerage is trying to determine the cost of supplying computing resources in order to determine how much to charge for trades. The company’s cost analyst is perplexed because XZ has acquired 80 servers to meet peak capacity needs, which occu
> Suppose an organization has not implemented either activity-based costing or a Balanced Scorecard but believes both would be valuable for the organization. However, management is currently willing to undertake only one major change initiative. Advise man
