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    Push & Pull Approaches, Spoilage, Cost Allocations & Outsourcing

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    A. Traditionally, companies in the United States have employed a "push" manufacturing style. Studies in Activity Based Management and Quality Control have indicated that this approach is filled with many non-value-added activities, which increase overall costs and reduce profits. The "push" style is being replaced with a "pull" approach. Required: Describe the major differences between the push and pull approaches. What non-value added activities are eliminated in a pull manufacturing system?

    B. What is the difference between normal and abnormal spoilage? How should they both be treated for accounting and reporting purposes? Explain.

    C. Why might a company want to allocate joint costs to the joint products produced?

    D. It is now common for many companies to outsource some or all of their internal support services, particularly those that require routine, straightforward procedures. Many companies are also outsourcing human resources, legal, tax and internal audit functions.

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    Solution Preview

    Question A:
    According to Zhou and Ventakesh (), the push manufacturing paradigm's production and inventory control system is largely dependent on forecasted values whereas in the pull approach, a level of inventory is maintained at each stage of the manufacturing process and replenishment is based on how fast it was consumed and thereby triggered by the succeeding process.

    One of the non-value added activities eliminated by a pull manufacturing system is the storage of inventory which is required by a push system. Another non-value ...

    Solution Summary

    This solution discusses push and pull approaches, normal and abnormal spoilage, cost allocations and outsourcing.