QUESTION: 125

A medium-sized manufacturing company, which operates in the electronics industry, has employed a firm of consultants to carry out a review of the company's planning and control systems. The company presently uses a traditional incremental budgeting system and the inventory management system is based on economic order quantities (EOQ) and reorder levels. The company's normal production patterns have changed significantly over the previous few years as a result of increasing demand for customized products. This has resulted in shorter production runs and difficulties with production and resource planning.

The consultants have recommended the implementation of activity based budgeting and a manufacturing resource planning system to improve planning and resource management.

How will a manufacturing resource planning system improve the planning of purchases and production for the company?

Select ALL the correct answers.

The traditional approach to determine material requirements is to monitor inventories constantly; whenever they fall to a predetermined level, a preset order is placed to replenish them. This traditional approach (involving re-order levels and economic order quantity calculations originates in the pre-computer era.
A manufacturing resource planning approach to the management of all the company's manufacturing resources including inventory, labour and machine capacity.
It seeks to ensure that resources are available just before they are needed by the next stage of production or dispatch. It also seeks to ensure that resources are delivered only when required so that raw material inventory is kept to a minimum.
The technique will not enable managers to track orders through the manufacturing process and will not assist the purchasing and production control departments to move the right amount of material or sub-assemblies at the right time to the right place.
The correct inventory management system relies on the assumption that there is constant demand. An MRP system begins with the setting of a master production schedule specifying both the timing and quantity demanded of each of the finished goods items and then works backwards to determine the resource requirements at each stage of the production process.
It aims to generate an estimation of materials requirements after taking account of the number of employees quality and waste. The TQS model can be used within MRP provided that the major assumption in the TQS model of constant demand applies.

Answer(s): A,B,C,E

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QUESTION: 126

Which of the following statements about relevant costs is correct?

Relevant costs will always be lower than the full costs used in external profit reporting.
Relevant costs will always be higher than the full costs used in external profit reporting.
Relevant costs may not be used in external profit reporting because they do not adhere to the accruals basis of accounting.
Relevant costs must be used in external profit reporting so that reported profits follow

the pattern of cash flow.

Answer(s): C

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QUESTION: 127

Traditional absorption costing is more suitable than activity-based costing when:

overheads are not driven by production volume.
the company has a diverse product range.
production is specific to customer needs.
overheads are small in comparison to direct costs.

Answer(s): D

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QUESTION: 128

CORRECT TEXT
A company manufactures a single product. The following budgeted data applies to month
6:

What was the budgeted fixed production overhead for month 6?

Give your answer to the nearest whole $ (in '000s).

$50000
$60000

Answer(s): B

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