The management of Toth Company has always taken pride in the quality of its motor products. Some of the company’s principles are:
➢    Products should be designed for “manufacturability,” functionality, quality, ease of maintenance and serviceability, and reliability.
➢    Standardization with fewer different parts and machines that are multifunctional reduce costs.
➢    Strong key supplier relationships are critical.
➢    Financial statements organized by chart of accounts are not necessarily sufficient.
➢    Problems should be analyzed to determine whether the root causes are related to materials, manpower, machines, or methods.
In the last year, Toth Company has experienced higher costs than expected. The company initiated an ABC and ABM pilot project to better understand the root causes of its unexpected high production costs using a data analytics tool. Below is a graphical representation of the results of the ABC and ABM project for the last three quarters:

Additional information:

● Actual costs exceeded budgeted costs by $40,000 in Quarter 1, $35,000 in Quarter 2, and $60,000 in Quarter 3.

● Total sales for the company were $500,000 in Quarter 1, $450,000 in Quarter 2, and $600,000 in Quarter 3.

● Net income was $30,000 in Quarter 1, $25,000 in Quarter 2, and $42,000 in Quarter 3.

● Production workers complained that long-time suppliers were not delivering the materials on time and that some materials were defective; both issues 

caused the workers to be idle and rework goods. These costs were included in the “Materials” amounts.

● In Quarter 1, two unexpected breakdowns of old equipment occurred. One of the machines was replaced in Quarter 3.

● In all quarters, some system conversion changes in procedures occurred without accompanying training sessions.

a. Would the information about problems with materials, manpower, machines, and methods be readily available from the financial accounting system?

b. Which other internal and external information would you be interested in obtaining to better plan, evaluate performance, and maximize the value chain relationships (suppliers and customers)?

Transcribed Image Text:

Methods Machines Manpower Materials 0% 5% 10% 15% 20% 25% 30% 35% 40% Quarter 1 Quarter 2 Quarter 3