CarolineH_Final Exam

CarolineH_Final Exam - Final Exam 1. (17 Points Discussion...

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Final Exam 1. (17 Points – Discussion – Stay under 15 minutes) Associated Media Graphics (AMG) is a rapidly expanding company involved in the mass reproduction of instructional materials. AMG is organized into a number of production departments, each of which is responsible for a particular stage of the production process, such as copyediting, typesetting, printing, and binding. An engineering department provides technical assistance to the various production units. Ralph Dais, owner and manager of AMG, has made a concentrated effort to provide a quality product at a competitive price with delivery on the promised due date. Expanding sales have been attributed to this philosophy. Dais is finding it increasingly difficult to personally supervise the operations of AMG and is beginning to institute an organizational structure that would facilitate management control. One change recently made was the designation of operating departments as cost centers, with control over departmental operations transferred from Dais to each departmental manager. However, quality control still reports directly to Dais, as do the finance and accounting functions. A materials manager was hired to purchase all raw materials and to oversee the inventory handling (receiving, storage, etc.) and record- keeping functions. The materials manager is also responsible for maintaining an adequate inventory based upon planned production levels. The loss of personal control over the operations of AMG caused Dais to look for a method of efficiently evaluating performance. Diane Cress, a new cost accountant, proposed the use of a standard cost system . Variances for materials and labor could then be calculated and reported directly to Dais. Required: Assume that AMG is going to implement a standard cost system and establish standards for materials, labor, and manufacturing overhead. For only the manufacturing overhead component , identify and discuss. (i) Who should be involved in setting the standards. (ii) The factors that should be considered in establishing the standards. In a standard cost system, each product has a set of standards associated with each input. Standard costs are useful for both decision management and decision control. A standard cost is the product of a standard quantity or usage and standard price. No universal method exists for deriving standard costs. Some experts argue that standard costs should be those that are currently attainable, meaning the cost that is achievable if normal effort and luck prevail. How tight standards should be and how much weight to place on meeting them in performance evaluation are important issues in designing AMG’s organizational architecture, issues that involve trading off the costs and benefits of tight versus loose standards. Most firms establish set standards based on expected, however, difficult to attain actual costs or based on past years average performance. Very few companies set standards at the maximum level of efficiency. One
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CarolineH_Final Exam - Final Exam 1. (17 Points Discussion...

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