Chapter 7 The Conversion Cycle

TRUE/FALSE 1. The philosophy of customer satisfaction permeates the world-class

firm. ANS: T 2. Reports generated by the cost accounting system include performa
nce reports and budget reports. ANS: T . The cost accounting system authori!es t
he release of raw materials into production. ANS: " #. $atch processing creates
a homogeneous product through a continuous series of standard procedures. ANS: "
%. The bill of materials specifies the types and &uantities of the raw material
s and subassemblies used in producing a single unit of finished product. ANS: T
'. A purchase re&uisition authori!es the store(eeper to release materials to ind
i)iduals or wor( centers in the production process. ANS: " *. The SA+ R, system
organi!es business processes into four categories: financial- logistics- human r
esources- and business process support. ANS: T .. The ob/ecti)e of the 0conomic
1rder 2uantity model is to reduce total in)entory costs by minimi!ing carrying c
osts and ordering costs. ANS: T 3. The wor(-in-process file is the subsidiary le
dger for the wor(-in-process control account. ANS: T 14. 5o)e tic(ets authori!e
the store(eeper to release materials to wor( centers. ANS: " 11. An operating ch
aracteristic of modern manufacturing firms is that labor is replaced with capita
l so that the firm can be more efficient and therefore more competiti)e.

ANS: T 12. 6omputer 7ntegrated 5anufacturing focuses on reducing the comple8ity

of the physical manufacturing layout of the shop floor. ANS: " 1 . The only ob/e
cti)e of the 9ust-7n-Time philosophy is to reduce in)entory le)els. ANS: " 1#. A
ccounting in a world-class manufacturing en)ironment emphasi!es standard cost an
d )ariance analysis. ANS: " 1%. 7dentifying cost dri)ers is an essential step in
implementing the 9ust-7n-Time philosophy. ANS: " 1'. A world class information
system produces )ery little paper. ANS: T 1*. 7nternal control procedures are )i
rtually identical in a world-class manufacturing en)ironment and in a traditiona
l manufacturing en)ironment. ANS: " 1.. 7n a world-class company- all acti)ities
- from ac&uisition of raw materials to selling the final productform a :chain of
customers.; ANS: T 13. The two subsystems of a traditional con)ersion cycle are
the production system and the deli)ery system. ANS: " 24. 5anufacturing resourc
es planning <5R+ 77= has e)ol)ed into electronic resource planning <0R+=. ANS: "
MULTIPLE CH ICE 1. >hich item does not describe a world-class company? a the go
al of a world-class company is to delight its customers . b customers in a world
-class company are e8ternal departments only . c world-class companies wor( in c
ross-functional teams .

d a world-class company has a flat organi!ational structure .

ANS: $ 2. >hich subsystem is not a part of the production system? a directing th
e mo)ement of wor( through the process . b determining raw material re&uirements
. c authori!ing wor( to be performed . d monitoring the flow of cost informatio
n related to production .
ANS: @ . The purpose of the cost accounting system is to a produce information f
or in)entory )aluation . b authori!e release of raw materials . c direct the mo)
ement of wor(-in-process . d determine material re&uirements .
ANS: A #. >hich process creates a homogeneous product through a continuous serie
s of standard procedures? a batch process . b ma(e-to-order process . c continuo
us process . d none of the abo)e .
ANS: 6 %. An e8ample of a continuous process is the production of a wedding in)i
tations . b mil( products . c /et aircraft .

d all of the abo)e .

ANS: $ '. All of the following are characteristics of batch processing e8cept
each item in the batch is similar . b batches are produced in accordance with
tailed customer specifications . c batches are produced to replenish depleted
)entory le)els . d setting up and retooling is re&uired for different batches

a
de
in
.

ANS: $ *. >hen determining which items to produce- a firm must (now a last yearA
s production le)el . b raw material in)entory le)els . c the standard cost of th
e item . d the sales forecast .
ANS: @ .. The production schedule is a the e8pected demand for the firmAs finish
ed goods for a gi)en year . b the formal plan and authority to begin production
. c a description of the type and &uantity of raw materials and subassemblies us
ed to . produce a single unit of finished product d the se&uence of operations d
uring manufacturing .
ANS: $ 3. A mo)e tic(et a is the formal plan and authority to begin production .
b specifies the materials and production re&uired for each batch . c records th
e wor( done in each wor( center .

d authori!es the store(eeper to release materials to wor( centers .

ANS: 6 14. The internal control significance of the e8cess materials re&uisition
is that it a indicates the amount of material released to wor( centers . b iden
tifies materials used in production that e8ceed the standard amount allowed . c
indicates the standard &uantities re&uired for production . d documents the retu
rn to raw materials in)entory of unused production materials .
ANS: $ 11. 7n)entory control performs all of the following tas(s e8cept it a pro
)ides production planning and control with the in)entory status report of finish
ed . goods b updates the raw material in)entory records . c prepares a materials
re&uisition for each production batch . d records the completed production as a
n increase to finished goods in)entory .
ANS: 6 12. The store(eeper releases raw materials based on the a production sche
dule . b materials re&uisition . c wor( order . d bill of materials .
ANS: $ 1 . >hich of the following is not an assumption of the 0conomic 1rder 2ua
ntity model? a demand for the product is (nown with certainty . b total cost per
year of placing orders is fi8ed . c lead time is (nown and is constant .

d there are no &uantity discounts .

ANS: $ 1#. "irms hold safety stoc( to compensate for a mathematical wea(nesses o
f the 0conomic 1rder 2uantity model . b )ariations in lead time or daily demand
. c fluctuations in carrying costs . d uncertainty in the estimation of ordering
costs .
ANS: $ 1%. >hat is the economic order &uantity if the annual demand is 14-444 un
its- set up cost of placing each order is B and the holding cost per unit per ye
ar is B2? a 1*# . b 12 . c 2#% . d none of the abo)e .
ANS: A 1'. 7f the daily demand is #4 units and the lead time is 12 days- the reo
rder point is a %2 units . b #. units . c #.4 units . d none of the abo)e .
ANS: 6 1*. >hich statement is not correct? a general ledger creates a new cost r
ecord upon receipt of a wor( order from production . planning and control b cost
accounting updates the cost record with data gathered from the materials re&uis
ition . c general ledger posts summary information about the manufacturing proce
ss based on a

. /ournal )oucher prepared by cost accounting d cost accounting computes )arianc

es and applies o)erhead to indi)idual cost records .
ANS: A 1.. >hich of the following is not a category of critical success factors
in most manufacturing companies? a product &uality . b customer ser)ice . c re)e
nue generation . d resource management .
ANS: 6 13. 6omputer integrated manufacturing groups all of the following technol
ogies e8cept a robotics . b materials re&uirements planning . c automated storag
e and retrie)al systems . d computer aided design .
ANS: $ 24. The SA+ R, system pro)ides pre-defined modules to support business pr
ocesses in the all of the following categories e8cept a human resources . b busi
ness process support . c strategic . d financial .
ANS: 6 21. >hich situation )iolates the segregation of functions control procedu
re? a production planning and control is located apart from the wor( centers . b
in)entory control maintains custody of in)entory items .

c cost accounting has custody of and ma(es entries on cost records . d wor( cent
ers record direct labor on /ob tic(ets .
ANS: $ 22. All of the following are internal control procedures that should be i
n place in the con)ersion cycle e8cept a calculation and analysis of direct mate
rial and direct labor )ariances . b retention of e8cess materials by wor( center
s . c physical count of in)entory items on hand . d limited access to raw materi
al and finished goods in)entories .
ANS: $ 2 . +rocess simplification focuses on a using 6omputer Numerical 6ontroll
ed machines which stand alone within a traditional . setting b completely automa
ting the manufacturing en)ironment . c reducing the comple8ity of the physical m
anufacturing layout of the shop floor . d organi!ing the process into functional
departments .
ANS: 6 2#. A manufacturing process that is organi!ed into group technology cells
utili!ing no human labor is called a islands of technology . b process simplifi
cation . c 6omputer 7ntegrated 5anufacturing . d traditional manufacturing .
ANS: 6 2%. An e8ample of automation of manufacturing design is a 6omputer Aided
0ngineering .

b Automated Storage and Retrie)al Systems . c 6omputer Numerical 6ontrol . d rob

otics .
ANS: A 2'. An e8ample of automation of manufacturing planning is a 6omputer Aide
d 0ngineering . b Automated Storage and Retrie)al Systems . c 5aterials Re&uirem
ents +lanning . d 6omputer Numerical 6ontrol .
ANS: 6 2*. "irms implement a 9ust-7n-Time in)entory approach to a reduce in)estm
ent in in)entories . b determine the optimum in)entory le)el using the 012 model
. c camouflage production problems . d ensure o)erproduction of in)entory .
ANS: A 2.. 6haracteristics of 9ust-7n-Time manufacturing include all of the foll
owing e8cept a push manufacturing . b !ero defects . c reduced setup time and sm
all lot si!es . d reliable )endors .
ANS: A 23. The cost of poor &uality includes all of the following e8cept a cost
of rewor( .

b warranty claims . c scheduling delays . d proceeds from the sale of scrap .

ANS: @ 4. A fle8ible manufacturing system a creates bottlenec(s in the process .
b leads to an :us; )ersus :them; attitude among wor(ers . c shortens the physic
al distance between acti)ities . d is organi!ed along functional lines .
ANS: 6 1. @eficiencies of the traditional cost accounting information system inc
lude all of the following e8cept a an emphasis on financial performance . b inac
curate cost allocations . c an emphasis on standard costs . d immediate feedbac(
about de)iations from the norm .
ANS: @ 2. >hich statement is not correct? a an acti)ity dri)er is a means to mea
sure the acti)ity used by the cost ob/ect . b cost ob/ect describes the wor( per
formed in a firm . c acti)ities cause costs . d cost ob/ects create a demand for
acti)ities .
ANS: $ . "irms are adopting Acti)ity $ased 6osting <A$6= because a it facilitate
s the analysis of )ariances .

b . c . d .
it more accurately allocates costs to products it recogni!es the importance of d
irect labor as a component of total manufacturing cost the financial nature of t
he reports permits comparisons to be made among different types of products
ANS: $ #. 7n traditional firms- information reporting a pro)ides financially ori
ented information relating to operations . b presents detailed information about
acti)ities . c shows the allocation of costs first to acti)ities and then to co
st ob/ects . d identifies nonessential acti)ities .
ANS: A %. Types of information pro)ided by Acti)ity $ased 6osting include a a de
scription of the single acti)ity dri)er used for o)erhead application . b the do
llar )alue of the direct material usage )ariance . c identification of cost dri)
ers . d details of the components of the single o)erhead cost pool .
ANS: 6 '. >hich statement is not correct? a the benchmar( approach compares (ey
acti)ities with similar acti)ities in other firms . b critical success factors i
nclude product and process &uality . c the A$6 model includes two perspecti)es:
an allocation of cost perspecti)e and a process . perspecti)e d in world-class m
anufacturing firms- &uality control acti)ities at the end of the process are . e
ssential
ANS: @ *. All of the following are documents in batch process production systems
e8cept a production schedule .

b route sheet . c materials re&uisition . d purchase order .

ANS: @ .. Transaction authori!ation occurs in a traditional manufacturing en)iro
nment in all of the following ways e8cept a production planning and control init
iates production with a wor( order . b mo)ement of the wor( through the producti
on process follows the mo)e tic(et . c the sales department modifies wor( orders
to match changes in demand . d the materials re&uisition authori!es the store(e
eper to release materials to the wor( . centers
ANS: 6 3. 5anufacturing fle8ibility incorporates four characteristics. These inc
lude all of the following e8cept a high product &uality . b high in)entory le)el
s . c automation of manufacturing processes . d physical reorgani!ation of produ
ction facilities .
ANS: $ #4. The stages of the automation continuum are <in order= a traditionalcomputer-integrated manufacturing- islands of technology- process . simplificati
on b process simplification- traditional- islands of technology- computer-integr
ated . manufacturing c traditional- islands of technology- process simplificatio
n- computer-integrated . manufacturing d traditional- process simplification- co
mputer-integrated manufacturing- islands of . technology
ANS: 6 SH RT A!S"ER

1. >hich type of manufacturing creates a homogeneous product through a continuou

s series of standard procedures? ANS: continuous process manufacturing 2. >hat i
nformation is contained in the bill of materials <$15=? ANS: The $15 specifies t
he types and &uantities of raw materials and subassemblies used in producing a s
ingle unit of finished product. . >hat is the difference between a materials re&
uisition and a purchase re&uisition? ANS: A materials re&uisition authori!es the
store(eeper to release materials and subassemblies to the production process. A
purchase re&uisition authori!es the purchasing department to place an order wit
h an e8ternal )endor to ac&uire goods or ser)ices. #. Cist one authori!ation con
trol in the traditional manufacturing en)ironment. ANS: wor( orders prepared by
production planning and controlD mo)e tic(ets signed by the foremanD materials r
e&uisitions and e8cess materials re&uisitions %. 08plain how 9ust-7n-Time in)ent
ory affects setup time and lot si!e. ANS: 7n a 9ust-7n-Time process- setup time
should be reduced as much as possible- ideally to !ero- and lot si!es should be
)ery small to ensure a continuous flow of product through the process. '. >hat i
s one benefit of the fle8ible production system? ANS: A fle8ible production syst
em shortens the physical distance between acti)ities- reducing setup timeprocess
ing time- handling costs- and in)entories. *. Cist two disad)antages of using a
traditional cost accounting system. ANS: 6ost allocations may be inaccurateD the
re is a time lag in reportingD information is reported in financial termsD there
is an emphasis on standard cost. .. 7n Acti)ity $ased 6osting- what is the term
used to refer to the wor( performed by a firm? ANS: an acti)ity 3. 7n Acti)ity
$ased 6osting- the acti)ity cost is assigned to the cost ob/ect by means of EEEE
EEEEEEEEEEEEEEEEEEEEEE. ANS:

an acti)ity <or cost= dri)er 14. 08plain benchmar(ing. ANS: >hen a process is be
nchmar(ed- (ey acti)ities are compared to similar acti)ities performed elsewhere
in the firm or in other firms. 11. +ro)ide a specific e8ample of source data au
tomation. ANS: bar coding- magnetic in( character recognition- electronic stripoptical character recognition 12. 7n a traditional manufacturing en)ironment- c
ost accounting pro)ides independent )erification of what information? >hat are t
he benefits? ANS: 6ost accounting reconciles materials and labor usage- from the
materials re&uisitions and /ob tic(etswith prescribed standards and identifies
significant departures. Such )ariance analysis is important for control of the m
anufacturing process. 1 . Fow are cost structures fundamentally different betwee
n the traditional and 675 en)ironments? ANS: 7n the traditional manufacturing en
)ironment- direct labor is a much larger component of total manufacturing costs
than in the 675 en)ironment. 1)erhead- on the other hand- is a far more signific
ant element of cost in ad)anced technology manufacturing. 1#. >hat are the (ey s
egregation of duties issues in the con)ersion cycle? ANS: 7n)entory control must
be separated from raw materials and finished goods custody. 6ost accounting mus
t be separate from the wor( centers. General ledger must be separate from other
accounting functions. 1%. Traditional accounting assumes that products cause cos
ts. A$6 assumes that EEEEEEEEEEEEEEEEE cause costs. ANS: acti)ities 1'. @ifferen
tiate between essential and non-essential acti)ities. ANS: 0ssential acti)ities
add )alue to the organi!ation either through adding )alue to the customer or to
the organi!ation. Non-essential acti)ities do not add )alue. 1*. Name the underl
ying assumptions of the 97T method. ANS: Hero defects- !ero setups- small lot si
!es- !ero in)entories- !ero lead times I reliable )endors- and team attitude.

1.. >hat document signals the completion of the production process? ANS: The rec
eipt by cost accounting of the last mo)e tic(et for a batch from the wor( center
signals the completion of the production process. 13. >hat document triggers th
e beginning of the cost accounting process for a gi)en production run? ANS: The
wor( order from the production planning and control department triggers the cost
accounting process. 24. Name fi)e documents associated with batch production sy
stems. ANS: Sales forecast- production schedule- bill of materials- route sheetwor( order- mo)e tic(et- and materials re&uisition. ESSA# 1. >hat are the accou
nting implications when a firm mo)es toward world-class status? ANS: >hen a firm
mo)es toward world-class status- changes will be re&uired in accounting techni&
ues- in information reporting- and in the integration of the information system.
>orld-class companies will apply accounting techni&ues li(e Acti)ity $ased 6ost
ing to obtain impro)ed cost information in order to ma(e better decisions concer
ning pricing- product mi8- and product and process design. 7nformation will be d
e)eloped to help managers understand and e)aluate manufacturing acti)itiesidenti
fy and eliminate nonessential acti)ities- identify cost dri)ers- and establish l
in(s between performance measures and decision ma(ing. "inally- firms will imple
ment information systems that integrate financial and nonfinancial information u
sing software li(e the 5anufacturing Resource +lanning 77. "irms will maintain a
n electronic lin( with e8ternal parties by implementing 0lectronic @ata 7ntercha
nge <0@7=. 2. 6ontrast the treatment of in)entories in the traditional manufactu
ring en)ironment and the world-class manufacturing en)ironment. ANS: 7n the trad
itional manufacturing en)ironment- in)entories are used to reduce or eliminate b
ac( orders. The goal in the traditional en)ironment is to minimi!e the cost of h
olding in)entory and the costs of ordering or manufacturing in)entory. 7n a worl
d-class manufacturing en)ironment the 9ust-7n-Time <97T= in)entory system is oft
en implemented. 7n)entories are (ept to the absolute minimum. 7n)entories arri)e
in small &uantities from )endors se)eral times per day. 7n)entory is :pulled; t
hrough the manufacturing processD there are no batches of partially completed pr
oducts throughout the production process. The 97T in)entory concept assumes: !er
o defects- !ero setup time- small lot si!es- !ero in)entories- !ero lead time- a
nd reliable )endors.

. @iscuss the (ey segregation of duties that should e8ist in the traditional man
ufacturing en)ironment. ANS: +roduction planning and control should be separate
from the wor( centers. 7n)entory control- which maintains accounting records for
raw materials <R5= and <"G= in)entories should be (ept separate from the materi
als storeroom and from the "G warehouse functions where these assets reside. The
cost accounting function accounts for wor( in process and should be separate fr
om the wor( centers in the production process. The general ledger <GC= function
should be separate from departments (eeping subsidiary account #. >hat are the f
our categories of business processes as defined as modules by SA+ R, ? 08plain.
ANS: "inancial: The financial modules include the financial accounting module th
at collects financial data for both internal and e8ternal reporting- the control
ling module for reporting and controlling costs- the fi8ed asset management modu
le that supports the management of fi8ed- leased- and real corporate assets- and
the ability to respond to interacti)e re&uests. Cogistics: The logistics module
s support manufacturing by means of an a)ailable-to-promise module to respond to
customer in&uiries- sales and distribution module to handle order entry and ord
er status- a product planning module for forecasting- and additional modules for
materials management- ser)ice calls- and plant maintenance. Fuman resources: Th
is module supports management of employees including hiring- wor( scheduling- an
d payroll processing. $usiness process support: Two types of modules handle wor(
flow and industry specific acti)ities. %. Fow can a world-class information syst
em yield a paperless en)ironment? ANS: Traditional paper flow can be essentially
eliminated in a world-class information system en)ironment. Sa)ings occur by el
iminating printing- handling- filing of paper documents- and data entry errors.
+art of the benefit comes from source data automation using technologies such as
bar coding <the familiar J+6 code permits scanning which eliminates most errors
=. Thus- recording of materials is simplified. 5agnetic monitoring of labor is p
ossible to tally labor charges and mo)ement of e&uipment and in)entory. '. Fow d
oes 5R+ 77 <manufacturing resource planning= e8pand on 5R+ <materials re&uiremen
ts planning=? ANS: 5R+ is an older system that focused only on the materials re&
uirements of the production process. 7t used wor( orders as a basis for a bill o
f materials and to determine in)entory re&uirements prior to production. 5R+ 77
e8pands on this idea by identifying production need for all inputsKmaterials <as
in 5R+=- labor- and e&uipment. 7n fact- 5R+ 77 pro)ides planning- feedbac(- and
control for coordinating all of the acti)ities of a firm. *. Name and e8plain t
he fi)e categories of critical success factors. ANS:

+roduct &uality: The firmAs product must meet or e8ceed the customerAs e8pectati
ons. +rocess &uality: The amount of process )ariation that results in scrap or r
ewor( must be minimi!ed. 6ustomer ser)ice: The demands of customers for finished
products must be met. Resource management: The firm must ma8imi!e the use of al
l resources in manufacturing. "le8ibility: The firm must be willing to ad/ust to
changes in demands in its en)ironment. .. 5R+ 77 integrates product design and
the production process with order entry- accounting. and acti)ity based costing.
>hat are some of the benefits? ANS: The benefits include: impro)ed customer ser
)ice- reduced in)entory in)estment- increased producti)ity- impro)ed cash flowassistance in achie)ing long-term strategic goals- help in managing changes and
fle8ibility in the production process. 3. The 9ust-7n-Time <97T= approach to in)
entories is regarded as a great ad)ance in in)entory management. There are si8 a
ssumptions that underlie 97T. @iscuss three. ANS: 9ust-7n-Time <97T= manufacturi
ng is a model which fosters in)entory reduction and e)en elimination. 7t is base
d on the following assumptions: Zero defects are assumed for raw materials- >7+and finished goods. The presence of e8cessi)e defects would re&uire e8tra in)en
tory as security. Zero setup time is desired because set-up time is not producti
)e. Small lot sizes permit high machine utili!ation. Zero inventories reduce the
in)estment that can be utili!ed elsewhere. Zero lead times and reliable vendors
are re&uired to ha)e the materials a)ailable when needed. A team attitude is re
&uired of all employees. 14. The te8t discusses the :e)ils of in)entory.; >hat a
re they? >hy are they :e)il?; ANS: 7n)entories cost money. They represent an in)
estment. They need to be insured and stored- both of which cost money. 7n)entori
es can become obsolete o)er time. 7n)entories camouflage production problemsKif
a cushion e8ists- orders can be filled e)en if production is slowed or stopped d
ue to difficulties. >illingness to maintain in)entories can precipitate o)erprod
uctionKif an organi!ation is willing to ha)e high stoc(- and if any incenti)es e
8ist to produceKrewards etc.- e8cess in)entory may be produces without ade&uate
demand. 11. Automation of manufacturing can be )iewed as a progression beginning
with the traditional manufacturing en)ironment. >hat are the stages? >hat disti
nguishes them? ANS: Automation of the manufacturing process can be )iewed as a g
radual progression. The stages are: Traditional manufacturing which consists of
many different types of machines that re&uire a lot of setup time- each controll
ed by a single operator. The >7+ follows a circuitous route through the differen
t operations. Islands of technology in which stand alone islands employ computer
numerical controlled <6N6= machines that can perform multiple operations with l
ess human in)ol)ementKless set up time. Process simplification which reduces the
comple8ity of the physical layout. Groups of 6N6 machines are arranged in cells
to produce an entire part from start to finish. No human in)ol)ement in a cell.

Computer integrated manufacturing <675=Ka completely automated en)ironment which

employs automated storage and retrie)al systems <AS,RS= and robotics. 12. Fow c
an a firm control against e8cessi)e &uantities of raw materials being used in th
e manufacturing process. ANS: The use of standard costs pro)ides a type of acces
s control. $y specifying the &uantities of material authori!ed for each productthe firm limits usage. To obtain e8cess &uantities re&uires special authori!ati
on and e8cess materials re&uisitions. 1 . 08plain the relationship between 5R+5R+77 and 0R+. ANS: 5anufacturing resources planning <5R+ 77= is an e8tension of
a simpler concept still in use called materials re&uirements planning <5R+=. 5R
+ is an automated )ersion of a traditional production planning and control proce
ss. 1n the other hand- 5R+ 77 is a reengineering techni&ue that integrates se)er
al business processes. 5R+ 77 is not confined to the management of in)entory. 7t
is both a system and a philosophy for coordinating the acti)ities of the entire
firm. As such- 5R+ 77 has e)ol)ed into the large suites of software called ente
rprise reso$rce plannin% &ERP' systems. These huge commercial pac(ages support t
he information needs of the entire organi!ation- not /ust the manufacturing func
tions. An 0R+ can calculate resource re&uirements- schedule production- manage c
hanges to product configurations- allow for future planned changes in productsand monitor shop floor production. 7n addition- the 0R+ pro)ides order entry- ca
sh receipts- procurement- and cash disbursement functions along with full financ
ial and managerial reporting capability. 1#. 08plain how 6A@ can contribute to a
firmAs mo)e toward world-class status. ANS: +roduct design has been re)olutioni
!ed through 6A@ technology. Ad)anced 6A@ systems can design both product and pro
cess simultaneously. Thus- aided by 6A@- management can e)aluate the technical f
easibility of the product and determine its :manufacturability.; 6A@ technology
greatly shortens the time frame between initial and final design. This allows fi
rms to ad/ust their production &uic(ly to changes in mar(et demand. 7t also allo
ws them to respond to customer re&uests for uni&ue products. The 6A@ systemAs 0@
7 interface permits the world-class manufacturer to share its product design spe
cifications with its )endors and customers. This communications lin( also allows
the world-class manufacturer to recei)e product design specifications electroni
cally from its customers and suppliers for its re)iew. 1%. 08plain how 6A5 can c
ontribute to a firmAs mo)e toward world-class status. ANS: 6omputer-aided manufa
cturing <6A5= focuses on the shop floor and the use of computers to control the
physical manufacturing process. The ob/ecti)e behind 6A5 is to replace labor thr
ough automation. 6A5 systems monitor and control the production process and rout
ing through the use of process control- numerical control- and robotics e&uipmen
t. A world-class manufacturer will deri)e se)eral benefits from deploying a 6A5
system: impro)ed process producti)ity- impro)ed cost and time estimates- impro)e
d process monitoring- impro)ed process &uality- decreased setup times- and reduc
ed labor costs. 1'. 08plain why traditional cost allocation methods fail in a 67
5 en)ironment.

ANS: Traditional accounting systems do not accurately trace costs to products an

d processes. 1ne conse&uence of new technologies is a changed relationship betwe
en direct labor and o)erhead costs. 7n the traditional manufacturing en)ironment
- direct labor is a much larger component of total manufacturing costs than in t
he 675 en)ironment. 1)erhead- on the other hand- is a far more significant eleme
nt of cost in ad)anced technology manufacturing. 7n this setting- traditional co
st accounting procedures are inade&uate. "or traditional allocations to be corre
ct- a direct relationship between labor and technology needs to e8ist. 7n 675- t
his relationship is diametric rather than complementary. >hen the cost pool is l
arge and the allocation method ambiguous- any miscalculation in assigning labor
is magnified many times in the calculation of o)erhead. 1*. 08plain how 97T can
reduce in)entory. ANS: Jnder the 97T approach- in)entories arri)e in small &uant
ities from )endors se)eral times per day :/ust in time; to go into production. 9
7T supports a pull manufacturing process. As production capacity upstream become
s a)ailable- the manufacturing process pulls small batches <or a single item= of
product into the ne8t wor( center. Rather than periodically ta(ing in large bat
ches- 97T promotes a continuous flow of production through the process pulled al
ong by idle capacity. Jnli(e the traditional push process- 97T does not create b
atches of semi-finished in)entories at bottlenec(s.