Name/ Section: RYAN JAY M.

RAYA / 3:00pm 6:00pm

Chapter/Topic: Chapter 1: Introduction to Managerial Accounting
Date Submitted: August 6, 2016

Skills Development Cases

S1-1. Video Case Assignment: Identifying Manufacturing Costs
Video URL: https://www.youtube.com/watch?v=jTtYQ2UtI1s

Case Requirement:

1. What product did you choose? Briefly describe how the product is made?

I choose the production of rally cars.

Most Rally cars are production sports cars that have been modified with

upgrades throughout to increase performance and make them more durable for

the punishing conditions they race under. You can either acquire a readymade car,

have it customized and design your own car from your base production model and

purchase individual components or assemble the car from scrap materials.

Building a rally car from a kit will require some mechanical skills, but in addition to

these you should have a working knowledge of handling, suspension, chassis,

powertrain, aerodynamics and safety. Understanding how car works is important

in setup, troubleshooting and improving its performance.

2. What are the major material inputs into the product? Pick one type of material used

to make this product and find out how much it costs. List one decision that

managers might make based on the cost of the materials.

Major Inputs include but is not limited to the following:

Suspension: You will want to design your car with the following goals:

1. Protect the driver and co-driver

2. Maximize durability. Aspects such as suspension mounts, suspension

components, skid plates, etc. that stand a good chance of breaking if not up to

the task. Metal fatigue is also an issue in cars where the suspension is

subjected to repeated shock loads.

3. Maximize grip by minimizing unsprung suspension weight to allow the tires to

follow the road surface

4. Maximize usable engine power

5. Maximize brake stopping power

6. Maximize ride height flexibility

7. Maximize suspension setup flexibility with adjustable springs, anti-roll bars and

damping to manage weight transfer and suspension compliance.

8. Maximize visibility.

There are many more potential goals, but ideally once the driver and co-

driver are confident, giving the car durability, performance and flexibility will enable

the driver to extract the maximum from it.

Chassis: The Roll cage/safety structure will likely help increase torsional rigidity.

Lightening the vehicle by removing rear seating, interior panels and other

components may be an option. Changes to the placement of components (i.e.

Battery) in order to redistribute weight balance can often go hand-in-hand with

lightening.

Powertrain: Depending on the class, powertrain modifications can include

extensive changes to the engine components and driveline components. No matter

what the class, the goals of changes to the powertrain should be to increase usable

horsepower and engine efficiency. This can be accomplished through replacing

stock components for increased internal flow (Intake/exhaust), improved

combustion, reducing friction and removing/replacing power robbing accessories.

In terms of final drive, any modifications such as limited slip differentials that

increase power delivery to the road should be considered.

Aerodynamic: Depending on the class, aero devices and bodywork changes to

enhance aerodynamics may be permitted. Reduction of drag should be a priority

as frontal area of a production car is not changeable. Aero devices such as an

underbody floor, air dam, wing (or spoiler) and diffuser are all possible depending

on what is permitted by the regulations.

 Designing the aero devices to work together and to balance front/rear downforce

will provide optimal downforce and stability. Designing in adjustability to generate

a wide range of downforce will give flexibility in setup.

Safety: A safety cell structure with racing seats/harnesses is mandatory. Other

safety items such as a fuel safety cell and fire extinguisher may also be required.

If an occupant safety cell structure is not available off-the-shelf, it will need to be

designed and fabricated.

The Cost of base platform (second hand cars) depends on how old the car is and

how long it has been used, usually judge by its odometer. The base vehicle cost

can be economical if purchasing a used donor vehicle up to 3-4 years old.

Purchasing much older donor vehicles may open the possibility of corrosion

damage and metal fatigue. Used donor cars will offer a lower cost entry point,

especially as the car will be a "development platform" for both the builder and

driver. Purchasing second hand cars my cost an average of P500,000.00

Racing parts will add to the cost of the base vehicle significantly. Suspension on a

rally car is very important, and this is an area where race-proven parts are definitely

worth the money. Beyond this, if you have adequate knowledge, it is possible to

select areas of modification that provide maximum value and keep costs to a

minimum.

The major decision to be made is on the selection of your base platform. If you

consider buying an older model, you might sacrifice the quality of the finished

product. There is also so much risk to be considered than buying a slightly used

vehicle which may cost you a bit higher but is a lot durable.

Another factor to be considered is whether you will modify the vehicle by yourself

or have it worked by auto shops.

3. Did you observe any direct labor in the video? Did you observe any indirect labor?

What is the difference?

 Labor includes all of the mental and physical work that people put into the

business. Some examples are workers employed directly in the car industry;

engineers, designers, paint sprayers, testers, management staff, transport &

distribution workers.

Direct labor includes but is not limited to the wages of employees working

in certain steps in the assembly line; to install the engine, install the hood, and

install the wheels, etc.

Indirect labor may come in any form. Car assembly is split between several

stations, all working simultaneously. Indirect labor includes moving the car from

one station to another as well as bringing the car to its distributor from the

manufacturing plants.

Direct labor costs are the costs of the gross wages of the workforce who

directly assemble the product being produced. In this case, for example, they

would be the assembly line workers who put the vehicles together. They are

distinguished from indirect labor, which is defined broadly as all other employees

in the company who do not directly assemble products.

4. List three examples of manufacturing overhead that you observed in the video.

How does manufacturing overhead differ from direct materials and direct labor?

Manufacturing overhead costs are the expenses a business incurs to

manufacture a product that don't fall into the direct material, direct labor. In the

video, these includes the cost of the warehouse building and production

machinery, the cost of utilities and upkeep for the factory, maintenance and repair

costs for production machinery and the cost of indirect labor, such as custodial,

warehouse or security employees who work in the factory but don't actually

assemble the product.

5. How much do you think it costs to make a single unit this product? List two

decisions that managers would make based on the cost of the product.

The finished products of rally cars cost vary depending on the specifications

and modifications made by the owner/manufacturer. With installation of modern

technologies around the car may cost a million but to the satisfaction of the

maker/user.
 The dilemma of the maker/manufacturer then is whether to purchase a

brand new rally cars available in the market and what are the advancements and

installations to be made if they build their own.

6. List two costs the company incurs that are not related to making the product. How

and why are these costs treated differently than the manufacturing costs identified

above?

The expense of sales, administration and executive staff, legal and tax

expenses, and other expenses not directly tied to manufacturing yet essential to

the operation of the business. Such expenses can include rent and utility expenses

for non-warehouse offices, the cost of office supplies, product distribution,

advertising and accounting expenses.

S1-2. Identifying Changes in Manufacturing Process and Costs Due to Automation

In recent years, many companies have invested in equipment to automate

processes that were once performed manually. A single example is a drive-through

car wash where robots wash and dry the cars rather than people.

1. What physical changes would conversion to automation cause in the way the

company does business?

Todays economic reality is that of increased competition, better informed

and demanding customers, more government compliance and relentless pressure

to cut costs. Companies are being asked to do more with less. Improving

processes has become a top priority for all types of businesses. Today, the top

business priority of companies is business process improvement. Of course, there

are many ways to improve process, but implementing process automation

technology offers significant opportunities for gains in efficiency, compliance, and

numerous other benefits.

2. What impact, both positive and negative, might automation have on employee

morale?

Automation has been shown to actually improve the morale of workers IF

robot integration relieves humans of the kinds of tasks which tend to create

employee dissatisfaction in the first place.

 For example, when the job task:

is potentially dangerous to humans

is boring and repetitive

does not require the benefit of uniquely human judgment

could be done better without human bias or prejudice

The issue that would affect morale for most workers has to do with the fear

that their job will be replaced by a robot.

If factory workers are able to trust that the robots they work beside will not

harm them and, in fact, are performing tasks that will help them in some way to do

their jobs and they believe that there will continue to be tasks for which humans

are better qualified to perform (ensuring job security), worker morale should be not

be adversely affected.

3. What impact might automation have on skill level of the companys workforce?

The Benefits of Process Automation. There are many benefits to process

automation. Some processes span systems, departments, or even external

business partners. Manual effort, poor hand-offs between departments or partners,

and the general inability to monitor overall progress results is a significant waste

for most processes. Process automation eliminates or significantly reduces these

problems along with a reduction in labor hours, time span, and increased

throughput; and

Increased Productivity. By automating processes that are currently being

implemented manually, individuals can work more efficiently and can take on new

or additional workloads. Process automation allows us to do more with less.

You also create Shorter Cycle Times. Time is money. By automating

processes, they are kept moving, hand-offs are seamless, consistency is assured,

and cycle times to complete the process are shortened. Getting the product or

service to the end user or to market quicker with less cost will result in significant

financial benefits.
 In addition Consistent Process Implementation is assured. Consistency

comes from having a documented process that is understood and followed every

time. Process automation makes the process easy to understand and enforces

adherence to the process steps and time lines. This eliminates missed steps and

mistakes often found in manual processes, resulting in consistent, reliable

measures that assist in making decisions and implementing process

improvements. The real benefit of process automation to management is the

visibility and control of the business processes that are achieved. Process

automation can activate the process; orchestrate the people, data, and documents

involved in the process; and give managers visibility into how the process is

operating, where the bottlenecks might be, and highlight possible improvements.

Process automation systems can capture and collect critical key performance

indicators and make that data available to facilitate optimization of the process.

The captured data allows business managers to optimize the process and feed

improvements back into the system automation, thus driving maximum

performance and efficiency across the organization.

4. How might automation affect the quality of the product and the efficiency of the

companys processes?

In todays competitive business environment where we are asked to cut

costs and do more with less, process improvement and automation is essential to

staying alive and meeting our strategic objectives. Process automation can

facilitate process implementation and improvement, provide consistency in

execution, ensure compliance, and allow us to change in response to rapidly

changing conditions and demands. A good automation system will provide an easy

way to automate processes, coordinate tasks, and move data between process-

players. It will also provide the flexibility and agility to support an ever changing

environment.

Ability to Quickly Implement Change is a another benefit of automated

process that the reliable, consistent information provided can enable management

to recognize the need for change or improvement quickly and implement changes

into effect in a faster and more controlled manner than you could with a manual
 process. The ability to change quickly provides an important business advantage;

and

Improved Customer Service and Satisfaction. Customers are much more

satisfied when they receive timely, top quality products and services. Process

automation enables you to build consistency into your products and services,

facilitate continuous improvement, and get the product or service to your market

faster and for less cost creating Happy Clients who are Repeat Clients.

5. How would you expect automation to affect direct materials, direct labor and

overhead costs? Would you expect any of these costs to increase or decrease?

With an automated workflow, you bypass the expensive costs associated

with errors and inefficiencies when a person is expected to own a business

process. Automation also offers low operational variability. Variability is directly

related to quality and productivity. Some businesses automate processes in order

to reduce production time, increase manufacturing flexibility, reduce costs,

eliminate human error, or make up for a labor shortage.

6. How would you expect automation to affect variable costs and fixed costs? Would

you expect either of these costs to increase or decrease?

To precisely evaluate whether the cost of direct materials, direct labor and

manufacturing overhead increases or decreases with process automation is not as

easy as it is. The effect may vary depending on a products cost driver and

depending on which process you opted to automate. The primary aim of

automation is to reduce the costs of operations. This does not seem to always

come true, because the most common problems associated with automation

systems in use have been cost-related. Automation as a long-term investment with

many implicit cost effects changes also the needs and practices of accounting

information. Analyzing the cost structures of activities is useful for revealing where

the automation has the greatest impact on operations. Also the assignment of

costs and resources to activities may have to be modified, while the validity of most

traditional, personnel-related drivers may decrease in automated environments.

Another difficulty may be in assigning costs to automated activities. While in the

 manual processes such drivers as number of personnel and labor hours are used

in most assignments, they may not be as valid in automated processes.

7. How might automation affect the price consumers pay for the product?

Depending on the extent of use of automation in the over-all production

process, prices of the product may increase/decrease.

8. How might automation affect the companys bottom line, both immediately and

several years in the future?

Process automation reduces the time it takes to achieve a task, the effort

required to undertake it and the cost of completing it successfully. Automation

ensures that every action is performed identically - resulting in high quality, reliable

results.

Automation not only ensures systems run smoothly and efficiently, but

that errors are eliminated and that your best practices are constantly leveraged.

Automated processes are controlled by defined workflows which consistently

operate accurately and within your defined timeline. Automation provides the

trifecta of requirements for successful measurement. Automation reduces the

number of tasks you and your employees would otherwise need to do manually.

This frees up your time to work on items that add genuine value to the business,

allowing you to be more innovative and increasing your employees levels of

motivation.

Automation also allows you to get more done in the same amount of time,

greatly increasing productivity.

S1-3. Identifying Service, Merchandising, and Manufacturing Firms

1. Choose one well known company from each category and explore that companys

website. On the website find a brief company description as well as the most recent

financial statements. Based on the company description, support our

categorization of the company as service, merchandising or manufacturing. If the

company falls into more than one of these categories, describe how.

Service and Merchandising: Smart Communication

 Smarts Communications is into service and merchandising business.

Based on the companys corporate profile, they are wireless service provider;

cellular, broadband, satellite and others. Aside from this, they are also into sales

of cellular handset, cellular subscriber identification module, SIM-packs, and

others.

Manufacturing: San Miguel Corporation

The companys profile clearly states that they are in the highly integrated

operations in beverages, food, packaging, fuel and oil, power, mining and

infrastructure.

2. Look at the income statement and balance sheet for the company and list any

factors that would support your categorization of the company as a service,

merchandising or manufacturing organization.

The Results of Operation of Smarts communication separately classified its

income base on Service revenues and Non-Service revenues as presented below:

2013 %
Service Revenues:
Cellular Php 105,875 89
Wireless broadband, and satellite and
others
Wireless broadband 9,432 8
Satellite and others 1,372 1

116,679 98
Non-Service Revenues:
Sale of cellular handsets, cellular 2,644 2
subscriber identification module, or SIM-packs,
and broadband data modems.

119,323 100

The Financial Statement of San Miguel Corporation on the other hand

shows a computation of Cost of goods sold, from materials inventory to factory

labor and manufacturing overhead which is a characteristic of a manufacturing

company.