Page 376 - Accounting Information Systems

C H A P TER 7 The Conversion Cycle 347

faulty cost system. Bill asked the team, ‘‘Is ACC begin- ‘‘Since ACC began accepting small-volume orders,
ning to show signs of a faulty cost system?’’ we have had our hands full. Each time we design a
Next, the team looked at the manufacturing overhead new part, a new program must be written. Addition-
breakdown (Case 6, Fig. 1). The current cost accounting ally, it seems the new small-volume parts we are pro-
system allocated 100 percent of this overhead to product
ducing are much more complex than the large-
based on labor dollars. The team felt ACC could do a
volume parts we produced just a few years ago. This
better job of tracing costs to products based on transac-
translates into more moves per run. Consequently,
tion volume. Jim explains:
we wind up performing AGV maintenance much
‘‘The manufacturing overhead really consists of more frequently. Sometimes I wish we would get rid
the six cost pools shown in Figure 1. Each of these of those AGVs; our old system of forklifts and opera-
activity cost pools should be traced individually to tors was much less resistant to change.’’
products based on the proportion of transactions
Sara Nightingale, the most experienced jobsetter at
they consume, not the amount of direct labor they
ACC, spoke about the current status of setups:
consume.’’
‘‘The changeover crew has changed drastically
The team conducted the following interviews to
recently. Our team has shifted from mostly
determine the specific transactions ACC should use to
mechanically skilled maintenance people to a
trace costs from activities to products.
team of highly trained programmers and mechani-
John ‘‘Bull’’ Adams, the supervisor in charge of ma-
terial movement, provided the floor layout shown in cally skilled people. This shift has greatly reduced
Figure 2 for Case 6 and commented on his department’s our head count. Yet the majority of our work is
workload: still spent on setup labor time.’’

CASE 6: FIGURE 3

Basic Product Information
101 102 103 Total

Production
Quantity 10,000 units 20,000 units 30,000 units 60,000 units
Runs 10 runs 4 runs 3 runs 17 runs
Shipments
Quantity 10,000 units 20,000 units 30,000 units 60,000 units
Shipments 20 shipments 4 shipments 3 shipments 27 shipments
Manufacturing cost
Raw material
Components 16 components 9 components 6 components
Cost per component $0.34 per component $0.49 per component $0.52 per component
Labor usage*
Setup labor 15.93 hours per run 63.68 hours per run 90.15 hours per run 684 hours
Run labor 0.05 hours per part 0.04 hours per part 0.03 hours per part 2,148 hours
Machine usage** 0.03 hours per part 0.02 hours per part 0.02 hours per part 1,297 hours
Other overhead
Engineering $72,050
Inspection 58,871
Material handling 65,252
Material moves 500 feet per run 350 feet per run 250 feet per run
Shipping $50,148
*Labor = $40 per hour; including fringe benefits
**Machine cost = $80 per hour