1.Explain why the problem of part number proliferation increases production cost

1. 1.Explain why the problem of part number proliferation increases production cost • <The problem on part number proliferation would increase the division’s production cost because the parts & components are stocked in inventory, thus, entails cost of money in inventory and cost maintain said inventory(i.e. warehouse, personnel, utilities , etc)

2. 2.Explain how long production cycle time could increase the production cost • < Long production cycle time increases the production cost by incurring more cost on two production cost components namely, direct labor and factory overhead.

3. 3. How could ABC system help reduce cost by attacking the problem on part # proliferation? a.) What is the division’s strategy in the marketplace? Ans. JIT system to ensure reduction of cost maintaining the raw materials b.) How are prices currently being determined? Ans. Prices shall be determined by studying existing supply and demand of the subject RM and react correspondingly such as maintaining reorder point if JIT system is not possible

4. c) Does management really need more accurate product costs, given its strategy and the reality of market-driven price? Ans. Yes d.) What is the current goal of management? Ans. The current goal of management is to have the raw materials available when needed at the lowest possible cost paving way to reduction of production cost.

5. e.) What is ( at least partially ) to blame for high production cost? • Ans. Unstable demand because of its uncontrolled proliferation thereby resulting to unstable price or cost of part number.

6. f.) How could an ABC system help solve the problem and reduce production cost? Ans. ABC system helps solve the problem at hand inasmuch as it is concerned with assigning overhead costs to products or services produced. The system has a two-stage procedure: (1) significant activities are

7. identified, and overhead costs are assigned to activity cost pools in accordance with the way resources are consumed by the activities;(2) the overhead costs are allocated from each activity cost pool to each product line in proportion to the amount of the cost driver consumed by the product line.

8. ABC system helps management in identifying cost component(major and minor) thereby giving them more information to introduce cost control measures such as but not limited to: 1. finding ways to reduce cost of raw materials – JIT 2. employees empowerment – encourages them to take initiative to improve operations, reduce cot, and improve product quality and customer service 3. Total quality control- maintaining quality at the lowest possible cost

9. 4. What cost drivers to be employed to solve the problem on proliferation and what works best? • < Cost drivers that can be employed are: • a. number of inspection • b. hours of inspection time • As LSC embarks into JIT inventory and production, inspection has to be done as the systems calls for no procurement of materials and no manufacturing of products unless needed; inventory management

10. by establishing re-order point to under no over stock nor understockof RM • If every inspection requires the same amount of time for all products, then the number of inspections will be highly correlated with inspection activity. On the other hand, if inspection vary significantly in the time required, then hours of inspection is highly correlated with the inspection activity .

11. 5. How could ABC system help highlight and solve the problem of too long production cycle times? • <ABC system helps highlight and solve the problem of too long production cycle times by determining only relevant and necessary activity which product costs are associated with thereby curtailing production cycle time.

12. 6. State how the fundamental role of ABC system differs in the case at hand compared to Patrio Grill Co. • < Life Safety Corp. is engaged with manufacturing sophisticated medical instruments while Patrio Grill Company is engaged with manufacturing high-end gas barbeque grills. <LSC is engineering-oriented company deigning new product while Patio Grill modifies existing product.

13. Therefore, the fundamental role of ABS system differs in LSC as compared to PGC in the sense that LSC is more of a difficult task in determining specific activities involved in the production.